author: ANDERSON, Circuit Judge.

text:
    NORTON CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 2534.
    Circuit Court of Appeals, First Circuit.
    June 10, 1931.
    James W. Mudge, of Boston, Mass. (Ropes, Gray, Boyden & Perkins, of Boston, Mass., on the brief), for petitioner.
    J. Louis Monarch, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Andrew D. Sharpe and John MacC. Hudson, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, and De Witt M. Evans, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for Commissioner of Internal Revenue.
    Robert N. Miller and Ward Loveless, both of Washington, D. C., amici curiae.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   ANDERSON, Circuit Judge.

This petition for a review of an adverse decision of the Board of Tax Appeals (19 B. T. A. 1234) involves petitioner’s income and profits tax for 1919 of $82,779.78. The controlling issue of law is whether the Commissioner was precluded from reducing the taxpayer’s amortization allowance, made on April 8, 1924, under section 234 (a) (8) of the Revenue Act of 1918 (40 Stat. 1057, 1077), by making another allowance in 1927.

The facts, conclusive on us, as in effect found by the Board of Tax Appeals, are as follows:

(1) The petitioner, which is a Massachusetts corporation with principal office at Worcester, claimed a deduction for amortization in the amount of $1,296,133.68 under the' provisions of section 234 (a) (8) of the Revenue Act of 1918 in connection with amended tax returns for the years 1918 and 1919 filed with the Commissioner on or about December 15,1921, and supported its claims by submission to the Bureau of a detailed and comprehensive report of an appraisal company and-subsequently further supported its claim by submission to the Bureau of a brief dated May 29, 1922, and a letter addressed to the Bureau engineer assigned to the field investigation of the petitioner’s amortization claim, to which letter there were attached sundry schedules containing supplemental information requested by the engineer together with additional data.

(2) Under date of January 5, 1923, the Bureau engineer assigned to the field investigation of petitioner’s amortization elaim submitted his report upon the elaim recommending an amortization allowance of $1,002,977.-30 in lieu of the amount claimed hy the petitioner ($1,296,133.68) and of such allowance of $1,002,977.30 allocating $981,647.89 to the year 1918 and $21,615.74 to the year 1919. The said report was signed by H. F. Coombs, as “Engineer,” by W. T. Jennings as “Reviewing Engineer,” and by S. T. De La Mater as “Chief of Section.”

(3) Under date of June 15,1923, the petitioner submitted to the Bureau a brief: “Re Revision of income, war and excess-profits tax returns for the calendar years 1918 and 1922, inclusive.” In this brief petitioner referred to the engineer’s report of January 5, 1923 (described in the preceding paragraph), as a report in which—

“ ® * * The Bureau of Internal Revenue, Amortization Section, stated the final results of an examination of the company’s elaim for amortization by an engineer from the Amortization Section, * * * ”

■ — and thereupon readjusted all of its computations affected by the amortization allowance to accord with the amortization allowance contained in said report of the Bureau engineer.

(4) Under date of February 29,1924, the Internal Revenue agent assigned to conduct a field examination of petitioner made his report to the Commissioner, and in such report recommended the same allowance for amortization as that previously allowed by the Amortization Section of the Bureau.

(5) Under date of April 8,1924, the Bureau addressed to the petitioner'a letter as follows:

“Treasury Department,
“Office of Commissioner of Internal Revenue,
“Washington, April 8, 1924.
“IT :CR: E W W C-App.
“Norton Company, Worcester, Massachusetts.
“Sirs: Reference is made to your request dated June 15, 1923, that your profits taxes for the years 1918 and 1919 be computed under the provisions of Sections 327 and 328 of the Revenue Act of 1918.
“Before consideration can be given your ■ application there must be a final determination of your net income; therefore it will be) necessary for you to advise this office within ten days from the date of this letter of your acquiescence in the determination of your net income as shown in schedules attached or exceptions, if any, which you make thereto.
“Respectfully,
“J. G. Bright, Deputy Commissioner.
“Enclosure: Statement Schedules 1 to 17, incl.”

To this letter were attached schedules embodying the detailed determination of net income for the years 1918 and 1919, and in these schedules amortization was allowed in the amounts recommended by the engineers of the Amortization Section.

(6) Under date of April 16,1924, the petitioner submitted to the Bureau its statement of exceptions to determination of net income and invested capital for the years 1918 and 1919, as shown in the Bureau letter of April 8,1924, referred to in item 5 preceding; this statement, however, including no exception with respect to the amortization deduction allowed by the Bureau in the said letter of April 8,1924.

(7) Under date of May 23, 1924, the petitioner submitted to the Bureau a letter in reply to the Bureau’s letter of April 8,1924; such reply being as follows:

“May 23, 1924.
“Commissioner of Internal Revenue, Washington, D. C.
“Sir: I, Aldus C. Higgins, Treasurer of the Norton Company, a corporation having its principal office at New Bond Street, Worcester, Massachusetts, do hereby agree to and acquiesce in the determination of the net income of the Norton Company for the calendar years 1918 and 1919, as set forth in Treasury Department letter of April 8,1924, symbols IT:CR:E WWC-App, except for the reservations contained in our brief dated April 16,1924, in the amounts therein stated, as follows:
“Calendar Tear 1918.
“1. Deduction is claimed of depreciation upon patente and contract.
“2. Depletion is claimed on Bauxits Mined.
“Calendar Year 1919.
“1. Deduction is claimed of depreciation upon patents and contracts.
“2. Loss is claimed on account of liquidation of the General Electro-Chemical Company.
“Respectfully submitted,
“Aldus C. Higgins.”

(8) At this time, namely, not later than May 23, 1924, the petitioner had submitted to the Bureau all the information and data which it cared to introduce or which the Bureau’s representatives had requested, as bearing upon or affecting its amortization allowance, and it was the understanding of the petitioner’s officers at that time that the amortization allowance made (as set forth in the Bureau’s letter of April 8, 1924, see item 5 hereof) was final and complete; and the petitioner evidenced its belief that the amortization .allowance thus determined was final and complete by removing from its idle amortizable equipment tags which had previously been placed upon such equipment for the purpose of identifying it as equipment acquired subsequent to April 5, 1917, and as therefore subject to amortization.

(9) Subsequent to May 23, 1924, the petitioner negotiated further with the Bureau in respect of the exceptions taken by it as described in item 6 of this statement of facts, but in such negotiations no reference whatever was made, either by the petitioner or by the representatives of the respondent, to the amortization allowance, and none of the exceptions thus considered affected or were affected by the allowance for amortization of war facilities under section 234 (a) (8) of the statute.

(10) In the autumn of 1926, approximately two and one-half years after the letters of April 8, 1924, from the Bureau, and í\Iay 23, 1924, from the petitioner the respondent transmitted to the petitioner its first intimation that the amortization settlement, as evidenced by the said 1924 letters, was to be reopened, and the Bureau based its 'desire to reopen that settlement and redetermine amortization expressly upon the existence of the then “present rulings of the General Counsel,” and the necessity for consideration by the Bureau of “additional data,” further intimating that failure on the part of the petitioner to co-operate would result in an “arbitrary disallowance of a very large portion of the previous amortization allowance.” Following this letter of the Bureau, representatives of the petitioner conferred in person with the ehief of the amortization section, on November 16', 1926, for the purpose of learning why the Bureau proposed to reopen the amortization matter, and were given, as the reason, that “the original computation had not been made in accordance with the present methods of the Department”, and that the Bureau therefore “wanted additional information,” and were further told that unless the petitioner furnished such additional information “an arbitrary computation would have to be made which would probably not be favorable to the Company.”

(11) The petitioner did not at any time, either before or after March 3, 1924, request the Commissioner or the Bureau to re-examine the petitioner’s return with respect to amortization and to redetermine its amortization allowance. The petitioner did submit, under date of December 15; 1926, a “Revised Claim for Amortization,” made up on a basis then indicated by the Bureau’s representatives as in conformity with their then rulings, but that document was submitted in part because of the consistent practice of the petitioner to co-operate with the Bureau and in part because of the insistence of the Bureau’s representatives as described in item 10 hereof, and their intimation that, unless the material was submitted an arbitrary and unfavorable adjustment would be made.

The petitioner’s representatives were under the impression that the Bureau was within its rights in demanding the submission of revised amortization data and in reopening the examination of amortization and in submitting the additional data submitted on December 15, 1926, the petitioner’s representatives had no intention of waiving any of the petitioner’s legal rights, and did not waive such rights. In the letter from the petitioner’s representatives to the Commissioner transmitting the above described “revised claim for amortization,” there was contained the following paragraph:

“The report of the amortization engineer on the original claim for amortization was made under date of January 5, 1923. This report was subsequently incorporated in the computations of the income-tax unit in its determination of the taxable net income for the calendar years 1918 and 1919. It is now nearly four years since that date, and the taxpayer had every reason -to believe that a final determination of its amortization allowance had been made.”

(12) Under date of November 4, 1926, the petitioner, by letter, requested the Commissioner to expedite the consideration of its income tax returns for the years 1917 to 1920, inclusive. Petitioner was advised on November 8, 1926, that a conference would be arranged at an early date, not later than November 18, 1926, due to the imminence of the expiration of the statute of limitations, and, in order to allow sufficient time for the proper consideration of the amortization question, waivers extending the statute of limitations should be submitted. A conference was held shortly thereafter in "Washington, with an engineer of the Amortization Section, as a result of which the petitioner filed its revised amortization claim of December 15, 1926.

(13) Further investigation of petitioner’s claim for amortization was made by Engineer Griffith, who submitted a report thereof dated July 8, 1927. The last determination of petitioner’s claim for amortization was made by respondent on December 26, 1927, when the deficiency letter upon which this petition is based was mailed.

(14) On page 3 of the report of Engineer William F. R. Griffith, dated July 8, 1927, referred to in finding of fact numbered 13, pursuant to which report of the Commissioner’s last determination of amortization, contained in the deficiency letter of December 26,1927, was made, there appears the following explanation of the occasion for the report:

Engineer Coombs made a field investigation of this claim in October, 1922, and submitted his report on January 5, 1923. In his report amortization was disallowed on a number of facilities and a number of the facilities were found to have been sold or discarded. Amortization has been allowed on the balance of the facilities practically as claimed.

Since Engineer Coombs’ report was submitted, S. .M. 4225 has been promulgated, which states as follows:

Both excess capacity and lowered replacement cost can be given consideration on the same facilities only in the case of individual items when the post-war cost of a similar facility of the proper size is definitely established.”

The case was returned to the Engineering Division from the Consolidated Return Division in April, 1926, for reconsideration of the amortization allowance.

The question presented involves the following statutes: Revenue Act of 1918, c. 18, 46 Stat. 1057, 1077:

“See. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 236 there shall be allowed [as deductions]: * * *
“(8) In the ease of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war, and in the case of vessels constructed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of the present war, there shall be allowed a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this title or previous Acts of Congress as a deduction in computing net income. At any time within three years after the termination of the present war the Commissioner may, and at the request of the taxpayer shall, reexamine the return, and if he then finds as a result of an appraisal or from other evidence that the deduction originally allowed was incorrect, the taxes imposed by this title and by Title III for the year or years affected shall be redetermined and the amount of tax due upon such redetermination, if any, shall be paid upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer in accordance with the provisions of section 252.”

The Revenue Act of 1921, c. 136, 42 Stat. 227, 254, contains, for present purposes, the same provision, substituting March 3, 1924, for the phrase “within three years after the termination of the present war.” Section 234 (a) (8). By section 278 (b) of the Revenue Acts of 1924 (chapter 237, 43 Stat. 366) and of 1926 (chapter 26-, 44 Stat. 9) it is provided :

“Sec. 278 * * * '(b) Any deficiency attributable to a change in a deduction tentatively allowed under paragraph (9) of subdivision (a) of section 214, or paragraph (8) of subdivision (a) of section 234, of the Revenue Act of 1918 or the Revenue Act of 1921, may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.” 26 USCA § 1659.

These statutes make March 3, 1924, the /‘dead line,” both for applications by the taxpayer for amortization allowances, and for the Commissioner to begin the determination of such allowances, but do not prevent the Commissioner from thereafter completing a determination begun before March 3, 1924. Counsel on both sides are agreed on this construction of the statutes.

The Commissioner contends that petitioner’s claim for amortization was in process of audit continuously from 1921 to 1927; that the only conclusive determination thereof was that made in 1927. The petitioner contends that there was final or conclusive determination of the amortization allowance on or before April 8,1924, and that the Commissioner was without authority thereafter to institute a redetermination.

Exhibit 22 (a), put in the record by the Commissioner, sets forth the organization of the Bureau of Internal Revenue under Office Order No. 715, dated February 21, 1923. Under the title “Organization of the Income Tax Unit,” it provides, under section 12:

“The Head of the Special Audit Division will supervise and be responsible for the operation of the following sub-division and sections: * * *
“E. The Amortization Section, which will initiate the audit of all claims under section 214 (a) (9) of the War Revenue Act of 1918, for amortization of investments in war facilities, and determine in all eases of claims for amortization the allowable deductions on this account.”

The facts found (paragraph 2, supra) show that this Amortization Section made its report under date of January 5, 1923, duly signed by the engineers and by the Chief of Section. This report reduced the taxpayer’s claimed allowance for amortization by nearly $309,000. The taxpayer accepted this reduction, and readjusted all its computations in accordance therewith, and applied, under date of June 15, 1923', for special relief under sections 327 and 328 of the Revenue Act of 1918. These sections (40 Stat. 1093) provide for special relief, where, owing to abnormal conditions affecting the' capital and income of the taxpayer, a tax, determined without reference to these sections, would be grossly disproportionate to the taxes imposed on comparable representative corporations. As indicated in the respondent’s letter of April 8, 1924, final determination of the taxpayer’s net income is necessary before consideration can be given to the special relief provided under these sections. They operate only on the rate — not on the net income. The necessary implication of this letter of April 8, 1924, is that the Commissioner had finally determined the amortization allowance; that nothing remained in abeyance except the formal assent of the taxpayer to that allowance, as well as to other items involving the amount of the net income, as shown in the schedules attached to the letter. The taxpayer’s reply, on May 23, 1924, accepted the Commissioner’s audit, with certain reservations; but these reservations have no connection with the allowance for amortization. The facts found show that only the named reservations remained undetermined; that on their determination the audit would be ripe for considering special relief under sections 327 and 328, supra.

Owing to a change in the rulings of the general counsel of the Internal Revenue office, nearly two and a half years later, the Commissioner notified the taxpayer that the amortization allowance was to be reopened. While the taxpayer co-operated with the Commissioner, it waived no legal rights. A change in the policy of the Tax Bureau cannot affect rights already settled.

The nature of amortization proceedings grounded good reason for the special limitation contained in the legislation therefor.

The value of the extra or special equipment of a manufacturing plant with facilities for producing war supplies could only, be determined after a reasonable time afteri the war. On the other hand, to prolong the investigation of the cost and amount of such facilities, that must be entirely or largely charged off as either useless or of greatly decreased value, would necessarily involve much confusion, divert the executives’ attention from the regular administration of their business, and be, in general, an expensive and wasteful process, both for the Tax Bureau and for the taxpayer.

Significance attaches to the fact that there is no statutory provision for a' waiver of this special limitation provision. The taxpayer cannot apply, even with the assent of the Commissioner, after March 3, 1924; the Commissioner may not begin a determination of an amortization allowance after March 3, 1924; only an uncompleted return, begun before March 3, 1924, may be completed thereafter.

We think that the Board’s ruling in this case that, “so long as any part of the petitioner’s audit was in abeyance, the entire audit was in abeyance,” is plainly inconsistent with the purpose of Congress in providing for a special limitation upon amortization determinations. In effect, the ruling of the Board would nullify this special time limit; for other items of a tax audit may be indefinitely extended, beyond the four or five years’ limit, by agreement betwefen the Commissioner and the taxpayer. T© tie up amortization allowances with every other item entering into a tax audit would plainly make the special limitation nugatory.

It should also be noted that, while the statutes of 1924 and 1926, supra, expressly-provided for tentative allowances, the letter of April 8, 1924, neither contained the word “tentative,” nor were the surrounding facts consistent with any purpose to make such allowance tentative. On the contrary, all the proceedings in the Internal Revenue office necessarily implied that, on the taxpayer’s acceptance of the substantially reduced allowance of the taxpayer’s claim by the amortization section of the Tax Bureau, that part of the basis of the petitioner’s ultimate tax should be regarded as finally settled. To repeat, the taxpayer accepted the Bureau’s findings, and the Commissioner conclusively indicated that this matter was closed.

To sustain the ruling of the Board that the amortization remained open until December 27,1927, over nine years after the Armistice, and over three and a half years after the “close of the war,” would be to nullify the plain intent of Congress. It would require plain language to justify leaving, for this unduly prolonged period, over a million dollars’ worth of manufacturing facilities subject to repeated appraisal. It is inconsistent with repeated, cited, rulings of the solicitor of the Internal Revenue Bureau.

The case of Ohio Falls, etc., Works v. Commissioner, 16 B. T. A. 1038 [affirmed June 13, 1931, 50 F.(2d) 660 (C. C. A. (6th)] is clearly contrary to the decision of the Board in the present ease. If the Board was right in that case, it was wrong in this case.

We are constrained to the conclusion that the Commissioner’s attempt to reopen the amortization allowance in 1926 or 1927 was ultra vires; that, under the circumstances here disclosed, the amortization allowance had been conclusively determined on or before April 8,1924.

The order or decision of the Board of Tax Appeals is reversed, and the ease is remanded to that Board for further proceedings not inconsistent with this opinion.


source: Caselaw Access Project

author: BOOTH, Circuit Judge.

license: Public Domain

text:
    SHARE et al. v. UNITED STATES.
    No. 9024.
    Circuit Court of Appeals, Eighth Circuit.
    June 5, 1931.
    E. S. Cary, of Minneapolis, Minn. (A. M. Cary, of Minneapolis, Minn., and Thomas J. Newman, of St. Paul, Minn., on the brief), for appellants.
    O. A. Blanchard, Asst. U. S. Atty., of St. Paul, Minn. (Lewis L. Drill, U. S. Atty., and Robert Y. Rensch, Asst. U. S. Atty., both of St. Paul, Minn., on the brief), for the United States.
    Before YAN VALKENBURGH and BOOTH, Circuit Judges, and MUNGER, District Judge.
   BOOTH, Circuit Judge.

The appellants, defendants below, were tried and convicted under the count of an indictment which charged them with unlawfully transporting intoxicating liquor. Verdict was entered December 2, 1929. Separate judgments and sentences were entered and filed April 12, 1930. Notice of appeal was served on opposing counsel and filed June 26, 1930. Petition for allowance of appeal was presented and filed, and order of allowance and assignment of errors were filed, all on the same day, August 26, 1930.

The record does not disclose that any motion for new trial was entertained by the trial court or filed; and it is conceded that none in fact was entertained or filed.

The statutory provisions governing the taking of appeals contain the following (28 USCA § 230): “Time for making application for appeal or writ of error. No writ of error or appeal intended to bring any judgment or decree before a circuit court of appeals for review shall be allowed unless application therefor be duly made within three months after the entry of such judgment or decree.” (Mar. 3, 1891, c. 517, § 11, 26 Stat. 829; Feb. 13, 1925, c. 229, § 8 [c], 43 Stat. 940.)

It is apparent from the record that no application for allowance of an appeal was made, within the statutory period. Act of April 26, 1928 (28 USCA § 861b). The notice of appeal was not effective for that purpose.

The requirements of the statute above quoted are jurisdictional, and cannot be avoided by consent, waiver, or by an order of the trial court allowing an appeal after the expiration of the time, unless the statute has been tolled by the entertaining of a motion for new trial timely made. Robie v. Hart, Schaffner & Marx, 40 F.(2d) 871 (C. C. A. 8), and eases cited.

After this appeal was submitted, and after the foregoing portion of this opinion was written, counsel for appellant, with consent of counsel for. appellee, furnished this court with a statement of associate counsel for appellant to the effect that between the 26th of June, and the 11th of July, 1930, he went to Duluth and presented to the trial judge an application for an allowance of ah appeal; that the application for the appeal, with other papers in the appeal, were submitted at said time, but the allowance was not had until the 26th of August, 1930. Judge Cant, the trial judge, has signed a certificate that the statement of counsel is correct “with the understanding, however, that the papers therein referred to were not left with me on any of the dates mentioned in said statement.”

We do not think that the facts thus disclosed in the statement of counsel, and in the certificate of the trial judge, are sufficient to alter the conclusion which we have heretofore reached. There is no showing that any assignment of errors was among the appeal papers submitted to Judge Cant at the Duluth interview. It is clear that no such document was filed at that time, or left with the judge. The assignment of errors was not filed until August 26, 1930. Why no papers were filed or left with the judge, we are not advised; but it is clear that for some reason the petition for appeal, accompanied by the assignment of errors, was not finally submitted to the trial judge for action at that time; nor is there any suggestion that counsel seeking the appeal, at the time of the Duluth interview, had done all that he was required to do in order to have the appeal allowed, and that the delay was due solely to inaction by the court.

Rule 11 of this court provides that no appeal shall be allowed until an assignment of errors shall have been filed. Compliance with this rule is a prerequisite to a hearing in the appellate court.

In Frame v. Portland Gold Min. Co. (C. C. A.) 108 F. 750, it was held: “The filing of an assignment of errors before the issue of a writ of error is indispensable, under the eleventh rule of the circuit courts of appeals (32 C. C. A. cxlvi), and the writ will be dismissed if the assignment is not filed before it issues.”

The same ruling had been made in the earlier case of Union Pac. Ry. Co. v. Colo. Eastern Ry. Co. (C. C. A.) 54 F. 22, and was adhered to in Reeder v. Morton-Gregson Co. (C. C. A.) 296 F. 785.

We see no reason in the present case for departing from the rule.

In view of the foregoing facts, and for the reasons stated, the appeal is hereby dismissed.


author: STONE, Circuit Judge. VAN VALKENBURGH, Circuit Judge

text:
    CAMPBELL BAKING CO. v. CITY OF HAR-RISONVILLE, MO., et al.
    No. 8327.
    Circuit Court of Appeals, Eighth Circuit.
    May 9, 1931.
    Rehearing Denied July 9, 1931

      VAN VALKENBURGH, Circuit Judge, dissenting.

      Herbert D. Mason and Stewart Lynch, both of Tulsa, Old. (John H. Lathrop, of Kansas City, Mo., and Harold R. Williams and Mason & Williams, all of Tulsa, Okl., and Lathrop, Crane, Reynolds, Sawyer & Merse-reau, of Kansas City, Mo., on the brief), for appellant.
    Raymond G. Barnett, of Kansas City, Mo. (Allen B. Glenn, of Harrisonville, Mo., and Cleary & Barnett, of Kansas City, Mo., on the brief), for appellees.
    Before STONE, YAN YALKEN-BURGH, and BOOTH, Circuit Judges.
   STONE, Circuit Judge.

This is an action to enjoin enforcement of an ordinance of the city of Harrisonville, Mo., levying a license tax upon appellant. From an order denying a temporary injunction, this appeal is brought.

The here material provision of the ordinance is as follows :

“Section 2-A. License: Each person, firm or corporation engaged in selling or delivering any goods or merchandise of any kind, at wholesale or retail, to any firm, person or corporation in the City of Harrisonville, Missouri, shall pay at the rate of $2.00 per day or $30.00 per month or $125.00 for six months or $200.00' per year; but this Section shall not apply to any person, firm or corporation selling at their regular established place of business. Any person, firm or corporation making any such sale or delivery, without first procuring a license and paying the said sum of $2.00 per day, or $30.00 per month or $125.00 for six months or $200.00 per year, shall be guilty of a misdemeanor, and, upon conviction, shall be fined in the sum of not less than $10.00 nor more than $25.00.”

This ordinance expressly applies to those who sell or deliver goods or merchandise in Harrisonville with no regular established place of sale therein. The undisputed business methods of appellant show it within the ordinance. Appellant has a large plant at Kansas City, Mo., where it makes bread and cakes. Among its customers are retail merchants in towns and cities which are sufficiently near to Kansas City to permit daily delivery by trucks of appellant over regularly established routes. One of these delivery routes covers seven communities, including Harrisonville. There are seven regular merchant customers in Harrisonville. These customers have standing orders (subject to approval of the plant manager) with appellant for daily deliveries to them at their places of business in Harrisonville. Each day -appellant’s deliveryman brings to each merchant the desired broad and cakes and picks up any unsold stock for return and credit. This is all of the business done by appellant in Harrisonville. That appellant has no regular established place of business in Harrisonville and that it makes deliveries of merchandise therein is clear. Also it is clear that the sales of the bread and cakes to the merchants at Harrisonville take place there. This is true because the necessary element of a sale is the passing of title (Norfolk & W. Ry. Co. v. Sims, 191 U. S. 441, 447, 24 S. Ct. 151, 48 L. Ed. 254; De Bary v. Souer, 101 F. 425, 428 [C. C. A. 5]; State v. Wingfield, 115 Mo. 428, 22 S. W. 363, 37 Am. St. Rep. 406) and this, under the above method of doing business, does not occur until the bread and cakes are delivered to the merchants there. At that time and place, title (as well as possession) passes, and not until that occurs is there any sale. The St. Joze Indiano, 1 Wheat. 208, 4 L. Ed. 73; The Carlos F. Roses, 177 U. S. 655, 20 S. Ct. 803, 44 L. Ed. 929; Buckingham v. Dake, 112 F. 258, 269 (C. C. A. 8); De Bary v. Souer, 101 F. 425 (C. C. A. 5); McElwee v. Metropolitan Lumber Co., 69 F. 302, 305 (C. C. A. 6); Scharff v. Meyer, 133 Mo. 428, 34 S. W. 858, 54 Am. St. Rep. 672. Cases where the seller made deliveries and the sale was held to be at the place of delivery are following: State v. Houts, 36 Mo. App. 265; Doster v. State, 93 Ga. 43, 18 S. E. 997; Merrill v. State, 175 Ind. 139, 93 N. E. 857, 44 L. R. A. (N. S.) 439; Cheadle v. Roberts, 150 Iowa, 639, 130 N. W. 368; Carter v. Bartel, 110 Iowa, 211, 81 N. W. 462; Cameron v. Fellows, 109 Iowa, 534, 80 N. W. 567; Bartel v. Hobson, 107 Iowa, 644, 78 N. W. 689; Com. v. Bottom, 140 Ky. 212, 130 S. W. 1091; Lochnar v. State, 111 Md. 660, 76 A. 586, 19 Ann. Cas. 579; Com. v. Hugo, 164 Mass. 157, 41 N. E. 123; Com. v. Eggleston, 128 Mass. 408; Com. v. Greenfield, 121 Mass. 40; State v. Kind, 80 N. J. Law, 176, 75 A. 438, affirmed 80 N. J. Law, 466, 78 A. 1135; Town of Montclair v. Scola, 76 N. J. Law, 137, 69 A. 451; Shuster v. State, 62 N. J. Law, 521, 41 A. 701, affirmed 63 N. J. Law, 355, 46 A. 1101; People v. Capen, 26 Hun (N. Y.) 377; State v. Wernwag, 116 N. C. 1061, 21 S. E. 683, 28 L. R. A. 297, 47 Am. St. Rep. 873.

The main contentions of appellant are that the ordinance is invalid as violating the Fourteenth Amendment, and also as being without the taxing power of the city under the state statutes and Constitution.

The Fourteenth Amendment. The contention as to violation of the Fourteenth Amendment is that the ordinance has made a taxation classification based upon nonresidence, and that such character of classification is arbitrary, unreasonable, and unjust, and denies that equal protection of the laws required by the Amendment. The ordinance is, in form, a revenue measure. We see no reason to disagree with the view of the trial court that the evidence failed to show any ulterior motive in its passage — such as police regulation under the disguise of a tax — and therefore we shall consider and determine the questions here raised from the basis that this is genuinely a revenue enactment.

The very nature and purposes of taxation usually prevent any exact equality. This situation is accentuated when the character of tax is that of a license or occupation imposition. Abstractly, there is no more reason to tax a butcher than there is to tax a baker, but the power to make selections among avocations for raising revenue exists, and the exercise of that power is governed by practical considerations which may appeal to the taxing body and are not subject to revision by courts. Southwestern Oil Co. v. Texas, 217 U. S. 114, 121, 30 S. Ct. 496, 54 L. Ed. 688. This selection is particularly free in license or occupation revenue legislation. Oliver Iron Mining Co. v. Lord, 262 U. S. 172, 179, 43 S. Ct. 526, 67 L. Ed. 929. In so far as the Fourteenth Amendment is concerned, the sole restriction upon such selection is that it shall not involve a classification which is “palpably arbitrary,” which is construed to mean that the classification “must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike.” Ohio Oil Co. v. Conway, 281 U. S. 146, 160, 50 S. Ct. 310, 314, 74 L. Ed. 775. A very great many cases involving classifications for occupational or license taxes by states or political subdivisions thereof have been before the Supreme Court of the United States, and each has been necessarily rested upon the particular situation involved therein. However, we think the decision in Singer Sewing Mach. Co. v. Brickell, 233 U. S. 304, 34 S. Ct. 493, 58 L. Ed. 974, involved a situation so identical or at least analogous to .that here presented that it must govern our determination. The statute in that ease is identical in essentials with the ordinance here, and is more restrictive, in one sense, in that it expressly applied to but one article — sewing machines. In that ease, the Supreme Court sustained the tax classification between “the business of selling sewing machines from a regularly established store and the business of selling them from a delivery wagon” (page 315 of 233 U. S., 34 S. Ct. 493, 497), because there was a difference “in the mode of doing business” (page 315 of 233 U. S., 34 S. Ct. 493, 497). The same difference in “mode of doing business” is here present. The Fourteenth Amendment is.not violated by this ordinance.

Power Under State Law. The Missouri statutes (Rev. St. Mo. 1929, § 7287, formerly Rev. St. Mo. 1919, § 8702) provide that “no municipal corporation in this state shall have the power to impose a license tax upon •any business avocation, pursuit or calling, unless such business avocation, pursuit or caEing is speeiaEy named as taxable in the charter of such municipal corporation, or unless such power be conferred by statute.” HarrisonviEe is not a charter city, but is a city of the “Fourth Class,” organized under general statutes governing cities of that class. Therefore its power to levy license taxes must be “conferred by statute.” The statute relied upon by appeEee as conferring the power to impose this tax is section 7046, Rev. St. Mo. 1929 (formerly section 8497, Rev. St. Mo. 1919, as amended by Laws of 1923, p. 267), which is a grant of power to cities of the fourth class to levy Hcense taxes.

While this section, after an extended enumeration of avocations, uses the words “and all other business, trades and avocations whatsoever,” the Missouri decisions seem to nullify this provision and to hold, not only that it does not extend the enumerations, but that it has not even the value of allowing application of the doctrine of ejusdem generis. Keane v. Strodtman, 323 Mo. 161, 18 S.W.(2d) 896, 898; Siemens v. Shreeve, 317 Mo. 736, 296 S. W. 415, 416; Viquesney v. Kansas City, 305 Mo. 488, 266 S. W. 700; Pierce City v. Hentschel (Mo. Sup.) 210 S. W. 31; Kansas City v. Grush, 151 Mo. 128, 52 S. W. 286, and see Kansas City v. Lorber, 64 Mo. App. 604. In the Siemens Case, the court traces the judicial history (St. Louis v. Laughlin, 49 Mo. 559; St. Louis v. Herthel, 88 Mo. 128; City of St. Louis v. Bowler, 94 Mo. 630, 7 S. W. 434) whieh led up to the enactment of this section and in which cases the doctrine of ejusdem generis had been upheld, and. (page 743 of 317 Mo., 296 S. W. 415, 418) says:

“Prom the foregoing it appears that the city of St. Louis, under its constitutional grant of power to frame a charter had by a blanket clause arrogated to itself the power to impose a tax on all occupations, professions, and pursuits, whether specially named or not, and what the city of St. Louis had done every other city, whether chartered under constitutional grant of power or by legislative enactment, would seek to do. Such was the situation after the Bowler decision in 1887, and it was evidently for the purpose of cheeking this wholesale delegation of the taxing power through a statutory expression of a previously well-defined, salutary policy that section 1900, R. S. 1889, was enacted. It is, in effect, a legislative finding and declaration of policy that, unless the business avocation, pursuit, or calling sought to be taxed by the municipal corporation is specially named as taxable in the charter, or unless such power is conferred by statute, the power to tax is not clearly and unambiguously delegated, and therefore consistent with the general sound policy of the law, it cannot be exercised. We think this statute applies to all municipal corporations whether under general or special charter. We inferentially so held in Pierce City v. Hentschel (Mo. Sup.) 210 S. W. 31, loc. cit. 32; Kansas City v. Grush, 151 Mo. 128, loc. cit. 134, 52 S. W. 286, and Viquesney v. Kansas City, 305 Mo. 488, loc. cit. 498, 266 S. W. 700. Such was the direct and unequivocal ruling of the Kansas City Court of Appeals in Kansas City v. Lorber, 64 Mo. App. 604, loc. cit. 607. In Viquesney v. Kansas City, 305 Mo. 488, 266 S. W. 700, and City of St. Louis v. Baskowitz, 273 Mo. 543, 201 S. W. 870, eases especially relied upon by respondents, this particular question was neither raised nor considered, and hence they are not controlling authorities in this case.”

While some of the.above cases are based upon charter powers, there seems to be no reason why the same principle of construction should not apply in treating grants of power under charters and grants under a statute when the relation in thought of charter and statute grants in section 7287 is considered. Therefore we accept the above decisions as determining that there must be specific enumeration of the avocation, and that no avocation is taxable by appellee, unless it comes within one of those set forth in section 7046.

Appellant urges that, if this ordinance (may be regarded as taxing a calling whieh is included within any of the avocations enumerated in the statute, it does this by subdividing such avocation, and that such is not permissible because the classifications for license tax purposes are made by the statute itself. It cites several Missouri eases. We have examined all of these citations as well as others. There are expressions in several opinions whieh, taken alone, support this contention (see City of St. Louis v. Baskowitz, 273 Mo. 543, 563, 564, 201 S. W. 870; State v. Miksicek, 225 Mo. 561, 125 S. W. 507, 511, 135 Am. St. Rep. 597; Kansas City v. Grush, 151 Mo. 128, 135, 52 S. W. 286), but in all of these eases the subclassification was in itself regarded as arbitrary. Unless these decisions be held to mean that no sub-classification is allowable where such is arbitrary, it is difficult to reconcile them with Eldorado Springs v. Highfill, 268 Mo. 501, 188 S. W. 68, whieh is later than the Grush and Miksieek Cases, only slightly older than the Baskowitz Case and decided by the same court. Attempting to reconcile the Highfill Case with the other cases, we think the rule to be deduced is that there may not be sub-classifications of an avocation enumerated in the statute unless such subelassifieation be reasonable and natural; that is, not arbitrary.

The classification attempted by this ordinance is of persons selling or delivering within Harrisonville who have no established place of sale therein. Such a classification has been held not arbitrary. Singer Sewing Mach. Co. v. Brickell, 233 U. S. 304, 34 S. Ct. 493, 58 L. Ed. 974. This classification is general, in that the ordinance does not specify any particular article of sale nor any particular calling beyond that it shall be such as involves a sale or delivery within the city without an established place of sale therein. Thus it might attach to more than one of the avocations enumerated in the statute — such as “hawkers, peddlers, * * * merchants of all kinds, grocers, confectioners, * * * butchers, * * * lumber dealers * * * photographers,” and possibly others. Since we have above determined that appellant sells and delivers in Harrisonville, and has no established place of sale therein, it comes within the broad terms of the ordinance. However, those broad terms cannot be applied to appellant, unless the business which it transacts in Harrisonville is within an avocation enumerated in the statute to which the meaning of the ordinance can be properly attached.

Appellee urges that such business may properly be regarded as coming within any of the statutory enumerations following: Peddler, bakery wagons, manufacturer, or merchant. We are directed to a statutory definition of peddler (Rev. St. Mo. 1929, § 13312), but that definition is for police and not revenue purposes (State v. Webber, 214 Mo. 272, 279, 113 S. W. 1054, 15 Ann. Cas. 983; Emert v. Missouri, 156 U. S. 296, 311, 15 S. Ct. 367, 39 L. Ed. 430). A judicial definition of peddlers is “persons who practice carrying merchandise about from place to place for sale, as opposed to traders who sell at established shops” (St. Louis v. Meyer, 185 Mo. 583, 595, 84 S. W. 914, 918) or “an itinerant or traveling trader who carries goods about in order to sell them, and who actually sells them to purchasers, in contradistinction to a trader who has goods for sale, and sells them in a fixed place of business” (Id., 185 Mo. page 596, 84 S. W. 914, 918). In general, the idea of a peddler necessarily includes the carriage of articles around in search of customers to whom sales and deliveries are made. Appellant does no such character of business, but sells and delivers to merchants who are its daily customers under an established business arrangement.

There is no enumeration of “bakery wagons” in the statute. There is a general enumeration of “all other vehicles,” but this ordinance is not, by its terms or any natural intendment, a “vehicle” tax. The term “manufacturing * * * corporations,” as used in the statute, implies a business of manufacturing which is carried on within the city —the license being for the privilege of carrying on that character of business within the city.

“Merchants of all kinds” is a broad designation. There is a statutory definition of merchant (Rev. St. Mo. 1929, § 10075 and section 10099), which is as follows:

“Who Declared to he a Merchant. — Every person, corporation or copartnership of persons, who shall deal in the selling of goods, wares and merchandise, including clocks, at any store, stand or place occupied for that purpose, is declared to be a merchant.”

This definition is in a taxing statute, but it is part of a statute having to do with an ad valorem property tax on the amount of “all goods, wares and merchandise which they may have in their possession or under their control” (section 10077), and the license required is purely to aid in procuring the property tax — the fee therefor is nominal, being but 50 cents (section 10086). A necessity for an ad valorem tax of this character would be the location within the state of the goods taxed. This is not necessarily a definition of “merchants óf all kinds,” as used in section 7046, which relates only to license or privilege taxes. As applied to privilege taxes, the term is defined as “ ‘one making a business of buying and selling commodities; a trafficker; a trader.’ Secondary meaning: ‘One who carries on a retail business’ ” (Vi-quesney v. Kansas City, 305 Mo. 488, 498, 266 S. W. 700, 703), and by this court as “persons engaged in the business of buying and selling merchandise or other personal property in the usual course of trade” (Union County Nat. Bank v. Ozan Lumber Co. [C. C. A.] 179 F. 710, 715). Appellant sells bread within the city of Harrisonville and would therefore seem to be a merchant, because it is “one making a business of * * * selling commodities” (bread) and one “engaged in the business of * • * selling merchandise or other personal property in the usual course of trade.” Also see City of Kansas v. Vindquest, 36 Mo. App. 584. Appellant contends it is simply a manufacturer. But a manufacturer may, as to the articles made by him, become a merchant when he sells them. Ozan Lumber Co. v. Union County Nat. Bank, 207 U. S. 251, 256, 28 S. Ct. 89, 52 L. Ed. 195; State v. Richeson, 45 Mo. 575; State v. Whittaker, 33 Mo. 457; Kansas City v. Ferd Heim Brewing Co., 98 Mo. App. 590, 73 S. W. 302.

We think appellant comes within the terms of the ordinance and within the description of “merchant” in the statute, and therefore is subject to this tax.

Some argument is made as to the ex-eessiveness of this tax showing its invalidity, but the evidence fails to show such excess. It shows appellant’s sales in Harrisonville are approximately $8,000 annually, while the total tax for a year under this ordinance is $200, or 2% per cent, of the sales. This is not so excessive as to suggest unreasonableness — even if the amount of a tax under a purely revenue measure can be considered as a test of the validity of the imposition.

The order denying the temporary injunction is affirmed.

VAN VALKENBURGH, Circuit Judge

(dissenting).

I regret that I am unable to agree with my associates in the conclusion reached by them. This case has had an unfortunate history. Upon the original appeal I concurred in affirmance, chiefly on the ground that the decree below was on temporary hearing. Judge Scott dissented. On petition for rehearing it was made apparent that great injury had resulted to appellant, because of a multiplicity of suits in appellant’s trade territory, based on identical or similar ordinances, and inspired by the published opinion in the .instant ease. It was shown that the controlling questions involved were as fully presented in this appeal as could be done on final hearing. Upon reconsideration, the rehearing was granted. It was hoped thereby to expedite the final determination of the controversy.

In the first opinion of this court, the expression “merchants of all kinds” contained in section 7046, Rev. St. Mo. 1929, granting power to cities of the fourth class to levy license taxes, was held to be a designation sufficient to include appellant, and to satisfy the requirements of section 7287, Rev. St. Mo. 1919. Oli rehearing, counsel for appellee, while seeking to sustain this classification on the theory of ejusdem generis (rejected, as the majority opinion correctly holds, by controlling decisions of the Missouri Supreme Court) in brief and argument placed greater dependence upon the contention that appellee was a peddler as specially designated in section 7046, Rev. St. Mo. The majority opinion holds that appellant is a merchant, as named in the statute, and comes within the express terms of the ordinance. In that opinion, which expressly holds that the Campbell Baking Company is not a peddler, appellant is nevertheless apparently viewed as an itinerant vender as defined in Singer Sewing Machine Co. v. Brickell, 233 U. S. 304, 34 S. Ct. 493, 58 L. Ed. 974. The decision of the majority depends upon the conception that appellant is a merchant within the statutory designation, and that its sales take place in Harrisonville. The definition of “merchant” contained in Rev. St. Mo. 1929 (sections 10075 and 10099), which would exclude appellant, is rejected upon the rather fine distinction drawn between different kinds of taxing statutes. The general definition of. a merchant contained in the Standard Dictionary is “a person who buys and sells commodities as a business and for profit; especially one who has a place of sale and stock of goods; a trader, a buyer, a shopkeeper; a storekeeper.” This does not differ materially from those definitions as applied to privilege taxes, used by the Supreme Court of Missouri (Viquesney v. Kansas City, 305 Mo. 488, 266 S. W. 700), and by this court (Union County National Bank v. Ozan Lumber Co., 179 F. 710, 715). But none of these definitions apply to the business of appellant as disclosed beyond dispute by this record. Appellant is essentially a manufacturer. It does not buy and sell. It maintains no stock of goods. It manufactures upon orders of its regular customers, and delivers those orders by its own vehicles throughout its trade territory. In the majority opinion appellant is correctly described thus:

“Appellant has a large plant at Kansas City, Missouri, where it bakes bread and cakes. Among its customers are retail merchants in towns and cities which are sufficiently near Kansas City to permit daily delivery by trucks of appellant over , regularly established routes. One of these delivery routes covers seven communities, including Harrisonville. There are seven regular merchant customers in Harrisonville. These customers have standing orders (subject to approval of the plant manager) with appel-Iant for daily deliveries to them at their places of business in Harrisonville.”

The business of appellant, as it is alleged and shown to he, is that appellant manufactures in its bakery in Kansas City bread and other bakery products to fill the orders of its regular customers. It “delivers the bread and bakery products so sold, by means of bread trucks, which are its own private conveyances,” to its said customers in Kansas City and vicinity, including the smaller towns, such as Harrisonville, in the surrounding trade territory. In Harrisonville it has seven customers “who have standing orders with' it for the daily delivery of bread and cake, and to fill these orders the deliveryman takes with him daily from Kansas City sufficient bread and cake. The bread and cake is sold only at wholesale, no retail sales being made whatsoever, and there is no solicitation of sales of bread or cake from house to house, and there is no hawking or peddling by the Campbell Baking Company or its drivers.”

“Manufacturing Corporations” are specifically named in section 7046, Rev. St. Mo., as subject to a license tax imposed by cities of the fourth class; but the'majority opinion rightly holds that the term, as used in the statute, implies a business of manufacturing which is carried on within the city— “the license being for the privilege of carrying on that character of business within the city.” Incidentally, it may be inquired why the same limitation does not apply to the term “merchants of all kind” as contemplated by the statute. It is, at least, extraordinary that such extraterritorial effect should be given to a loeal municipal ordinance.

The distinction between manufacturer and merchant is sharply drawn. In State of Missouri v. Richeson et al., 45 Mo. 575, the court held that: “One who manufactures and supplies goods to the previous orders of his customers alone, although he keeps on hand, but not for sale, the materials from which the manufactured articles are produced, is not a merchant within the meaning of the statute” —citing State v. West, 34 Mo. 427, in which it was said: “To be a merchant in the sense of the law, the dealer must have on hand goods, wares, and merchandise ready for sale and present delivery, and must also actually deal in the selling of the same.”

The Kansas City Court of Appeals in Kansas City v. Butt, 88 Mo. App. 237, held that: “In the commercial world there is a dictinction between a wholesale dealer and a manufacturer of which the courts take judicial cognizance, and the charter and ordinances of Kansas City impose a license tax upon a wholesale ice dealer but not on the manufacturer of ice.” In the body of the opinion it is said: 9 * 9 As so understood and' recognized a wholesale dealer is one who buys and sells to other dealers. A manufacturer is one who is engaged in the process of reducing raw materials to a form for use, by the hands, by art or machinery. The fact that he sells the product at wholesale does not make him a wholesale dealer. Unlike the wholesale dealer who buys and sells <to other dealers, he produces and sells.”

In the foregoing, the writer of the opinion in City of Kansas v. Vindquest, 36 Mo. App. 584, concurred. The holding in these Missouri eases applies without qualification to the case at bar.

The majority opinion does not dispute the fact that appellant is a manufacturer. But it says “a manufacturer may, as to the articles made by him, become a merchant when he sells them.” This is only partially true. In support of this statement, the following eases are cited: Ozan Lumber Co. v. Union County Nat. Bank, 207 U. S. 251, 256, 28 S. Ct. 89, 91, 52 L. Ed. 195; State v. Richeson et al., 45 Mo. 575; State v. Whittaker, 33 Mo. 457; Kansas City v. Ferd Heim Brewing Co., 98 Mo. App. 590, 73 S. W. 302, 303.

I have already shown that the distinction between manufacturer and merchant is expressly recognized in State v. Rieheson, supra. State v. Whittaker thus restricts and limits the application of. the .term “merchant”: “The statute defines a merchant to be a person who deals in the selling of goods, wares, and merchandise, at any store, stand or place occupied for that purpose. We cannot go beyond the statute to find any other definition of a merchant.”

In Kansas City v. Ferd Heim Brewing Co., the same distinction is reiterated thus:

“A merchant must have a store, stand, or other place where he sells his goods.
“A manufacturer is not a merchant if he only manufactures goods to fill orders from his customers.”

The Brewing Company was held to be a merchant because it was found to keep in stock, at a store, stand, or similar place, articles manufactured by it for sale in the ordinary course of trade.

In Ozan Lumber Company v. Union County Nat. Bank an Arkansas statute was sought to be declared discriminatory becauáe paragraph 4 of the act provided that its terms should not apply to merchants and dealers who sell patented articles in the usual course of business. The Supreme Court, incidentally, and in no sense in contradiction of the generally recognized distinction, said: “The manufacturer of a patented article, who also sells it in the usual course of business in his store or factory, would probably come within the exception of § 4. He may be none the less a dealer, selling in the usual course of his business, because he is also a manufacturer of the article dealt in.”

This court made the distinction very clear in Union County National Bank v. Ozan Lumber Co. (C. C. A.) 179 F. 710, 714. It pointed out that the Supreme Court in the case cited (207 U. S. 251, 256, 28 S. Ct. 89, 52 L. Ed. 195) had imposed a significant qualification upon the word “manufacturer,” and had held thát it was only “such a manufacturer as sells in the usual course of business in his store or factory” that would come within the protection of paragraph 4 as a “merchant or dealer.” Obviously, on this record, and on the accepted nature of its 'business, appellant is a manufacturer and not a merchant. It does not buy and sell. It produces for sale, and only for its order customers. It keeps no stock on hand for sale, at any store or other place. The sales it makes of its product are made in its capacity as a manufacturer. It does not sell at retail, but upon order to merchants and dealers. If it is a Kansas City manufacturer and not a merchant, it is conceded that, as such, it is not named in the act permitting the imposition of license taxes by cities of the fourth class.

It is insisted, however, not only that appellant is a merchant within the purview of the Harrisonville ordinance, but that its sales take place at Harrisonville. The majority hold that “this is true because the necessary element of a sale is the passing of title * * * and this, under the above method of doing business, does not occur until the bread and cakes are delivered to the merchants there.” This is a correct statement of the law as applied to some situations, but it is by no means of universal application, nor does it apply to the business of appellant. The Court of Appeals for the Sixth Circuit-in McElwee v. Metropolitan Lumber Co., 69 F. 302, 305, recognized the general rule as stated, but held in that ease that the provision that the vendor should deliver at Chicago did not prevent the title from passing before such delivery, quoting Benjamin on Sales as follows: “Slight evidence is, however, accepted as sufficient to show that title passes immediately on the sale, though the seller is to make a delivery. The question, at last, is one of intent, to be ascertained by a consideration of all the circumstances.”

The same text-writer, remarking that, “by the common law, all that was required to give validity to a sale of personal property, whatever may have been the amount or value, was the mutual assent of the parties to the contract,” remarks that “there is no branch of the law of sale more confusing to the student than that of delivery. This results from the fact that the word is unfortunately used in very different senses; and unless these different significations are carefully borne in mind, the decisions would furnish no clue to a clear perception of principles.” He points out that “the word ‘delivery’ is sometimes used with reference to the passing of the property in the chattel, and sometimes to the change of the possession of the chattel; in a word, it is used in turn to denote transfer of title or transfer of possession.” In the latter sense delivery has reference merely to performance of the contract. Benjamin on Sales (7th Ed.) c. 2, pars. 674, 675, pp. 694, 695.

The Supreme Court in Norfolk & West Ry. Co. v. Sims, 191 U. S. 441, 447, 24 S. Ct. 151, 152, 48 L. Ed. 254, uses this pertinent language:

“While it may be entirely true that the property in the thing sold does not pass under a C. O. D. consignment until delivery of the goods and payment to the carrier, and hence it may be said that the sale is not completed until then, yet, as matter of fact, the bargain is made, and the contract of sale completed as such, when the order is received in Chicago, and the machine shipped in pursuance thereof.
“A sale really consists of two separate and distinct elements: first, a contract of sale, which is completed when the offer is made and accepted; and, second, a delivery of the property which may precede, be accompanied by, or follow, the payment of the price, as may have been agreed upon between the parties. The substance of the sale is the agreement to sell, and its acceptance. That possession shall be retained until payment of the price may or may not have been a part of the original bargain, but in substance it is a mere method of collection, and we have never understood that a license could be imposed upon this transaction except in connection with the prior agreement to sell, although, in certain eases arising under the police power, it has been held that the sale is not complete until delivery, and sometimes not until payment. Were it not for the opinion of the supreme court of North Carolina, we should have said that the words ‘engaged in the business of selling the same within the state’ had reference to the word ‘selling’ in its popular and ordinary sense of selling from a stoek on hand or upon a special order to a manufacturer, and not to a mere method of collecting the money.”

In Shuenfeldt et al. v. Junkermann (C. C.) 20 F. 357, Judge Shiras, of the Northern District of Iowa, held that: “The contract of a traveling agent, which required ratification by his principal, is deemed to have been made at the place where the ratification was given.”

The decision of the Court of Appeals for the Fifth Circuit in De Bary et al. v. Souer, 101 F. 425, is thus epitomized in the syllabus : “Where a wholesale liquor firm, having an office in New York, where it pays the internal revenue tax required of such dealers by Rev. St. § 3244, accepts orders at such office, and directs the delivery of the goods thereon from a public warehouse in New Orleans, in which they are stored, such sales are made in New York, and not in New Orleans, and do not render the firm subject to a second tax as a dealer at New Orleans.”

It is pointed out that “delivery is not an essential element in or to the completion of a sale of personal property.”

The holding of this court in Buckingham v. Dake, 112 F. 258, was obviously dictated by the facts of that case as stated on page 270 of the Federal Reporter.

In this ease the Harrisonville merchant has a standing order for a definite amount of bread and cake. This order, being subject to approval by appellant at Kansas City, and accepted there, makes the transaction a sale at Kansas City. The bread and cake is manufactured to fill this order, as it is to fill all orders. The subject-matter is as definite as is a machine or other specific article sold by a manufacturer. If the bread and/or cake thus ordered were shipped and delivered by common carrier, instead of by appellant’s truck, would it be contended that the delivery was essential to the consummation of the sale? I think not. The language of the Supreme Court in Caldwell v. North Carolina, 187 U. S. 622, 632, 23 S. Ct. 229, 233, 47 L. Ed. 336, while used m an interstate commerce ease, is applicable here: “It would seem evident that, if the vendor had sent the articles by an express company, which should collect on delivery, such a mode of delivery would not have subjected the transaction to state taxation. The same could be said if the vendor himself, or by a personal agent, had carried and delivered the goods to the purchaser.”

We have not here presented a ease where the customer was not bound to take the bread and/or cake, manufactured to fill his order, unless he saw fit. The exceptional nature of the product, and the undisputed course of dealing, negative such a contention. I can take no exception to the view of the majority that, as said by the Supreme Court in Singer Sewing Machine Co. v. Brickell, 233 U. S. 304, 315, 34 S. Ct. 493, 497, 58 L. Ed. 974, '“there is an evident difference, in the mode of doing business, between the local tradesman and the itinerant dealer, and we are unable to say that the distinction made between them for purposes of taxation is arbitrarily made.” The vice in the conclusion here reached is that appellant, even though, for argument’s sake, it be conceded to be a merchant, is not an itinerant dealer. Itinerant dealers or vendors are, in effect, peddlers (State v. Webber, 214 Mo. 272, 113 S. W. 1054, 15 Ann. Cas. 983) and the majority concede that appellant is not a peddler. See, also, Peterson Baking Co. v. City of Fremont, 119 Neb. 212, 228 N. W. 256. The Supreme Court makes the distinction clear in the closing paragraph of its opinion in Singer Sewing Machine Co. v. Brickell, supra: “It is quite plain, however, from a reading of the entire section, that the business of selling sewing machines by traveling salesmen is intended to he taxed, and the business of selling them at established places of business is intended to be left untaxed, so far as this section is concerned, although the machines sold at these places be delivered by wagons. Complainant is engaged in doing business of both kinds; and with respect to the itinerant sales it is subject to the tax under the section referred to.”

The meaning is made still clearer by the language of the same court in Emert v. Missouri, 156 U. S. 296, 311, 15 S. Ct. 367, 370, 39 L. Ed. 430, which case is cited with approval in the Briekell Case: “The defendant’s occupation was offering for sale and selling sewing machines, by going from place to place in the state of Missouri, in a wagon, without a license. There is nothing in the case to show that he ever offered for sale any machine that he did not have with him at the time.”

It is obvious that both of these cases had in mind the ' one-time sewing machine “agent,” who went from place to place with a sewing machine in his wagon, soliciting, selling, and delivering wherever a customer could be found. Neither appellant nor its employees are engaged in a business of this nature. The Supreme Court of Nebraska in Peterson Baking Co. v. Fremont, supra, held an ordinance of like purport inapplicable to the baking company, and that an annual tax of $300 on the occupation was so excessive and confiscatory as to destroy the incentive to sell and deliver bread in Fremont, and to amount to a prohibition of the right to do so. This record discloses that local manufacturers and merchants in Harrisonville are taxed at the rate of from five to ten dollars per year, and that callings of every nature, including those with a vastly greater volume of business, pay a license tax negligible compared with that imposed upon appellant and those similarly situated. The City of Harrisonville by this ordinance is seeking to impose upon the citizens of other Missouri cities discriminations from which the commerce clause of the Federal Constitution mercifully protects the citizens of other states, otherwise similarly situated. Caldwell v. North Carolina, 187 U. S. 623, 23 S. Ct. 229, 47 L. Ed. 336; Rearick v. Pennsylvania, 203 U. S. 507, 27 S. Ct. 159, 51 L. Ed. 295; Dozier v. Alabama, 218 U. S. 124, 30 S. Ct. 649, 54 L. Ed. 965, 28 L. R. A. (N. S.) 264; Jewel Tea Co. v. Lee’s Summit, Mo. (D. C.) 198 F. 532, affirmed (C. C. A. 8) 217 F. 965.

Here resort must be had to the equal protection guaranty of the Fourteenth Amendment. The majority opinion concedes, as it must,, that so far as this amendment is concerned the classification shall not be “palpably arbitrary.” The Supreme Court in Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389, 400, 48 S. Ct. 553, 554, 72 L. Ed. 927, states the rule thus: “The equal protection clause does not detract from the right of the state justly to exert its taxing power or' prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, ‘but it does require that the classification be not arbitrary, but based on a real and substantial difference having a. reasonable relation to the subject of the particular legislation.’ Power Mfg. Co. v. Saunders, 274 U. S. 490, 493, 47 S. Ct. 678, 679, 71 L. Ed. 1165.”

The majority opinion calls attention to the expression of the trial court, in its memorandum opinion, that it was unable to say that the distinction made between the. local tradesmen and the itinerant dealer for purposes of taxation was arbitrarily made. The questions here raised are therefore considered “from the basis that this is genuinely a revenue enactment.” Of course, it does not purport to be a police regulation. Later the same trial judge had occasion to pass upon the same questions in Campbell Baking Co. v. City of Maryville (D. C.) 31 F.(2d) 466. This ease involved the same issues, arising under a substantially identical ordinance. The trial court, answering the question whether the effect of the ordinance is to deny to these complainants the equal protection of the laws, said that where “it appears from gross disparities, from extraordinarily large exactions (as compared with others), and from all the facts, that the real intent and purpose is, not to raise revenue, but to destroy the business of nonresidents, in the interest of resident dealers and business men, when that appears, then nonresidents are denied that equal protection of the laws which the Constitution guarantees to all.

“From the facts here it is impossible to escape the conclusion that discrimination against these complainants, so great as 'to prevent them from competing with local dealers, was the sole purpose and will be the only effect of this ordinance. For the reasons stated, I hold the ordinance invalid as sought to be enforced against complainants, and grant them the permanent injunction prayed.”

It is true that Judge Otis decided this later ease on final hearing, and upon what he deemed to be a fuller showing. There can be no doubt, however, that the business of appellant is conducted in the same manner throughout its trade territory. Under the conditions that have attended this appeal, it would be unfortunate if its final disposition should be compelled to await final hearing. The majority dispose of it on grounds lying at the root of the controversy.

Respecting the genuineness and good faith of such ordinances, the Supreme Court, in Caldwell v. North Carolina, supra, 187 U. S. loc. cit. 626, 23 S. Ct. 229, 231, 47 L. Ed. 336, said: “This kind of taxation is usually imposed at the instance and solicitation of domestic dealers, as a means of protecting them from foreign competition. And m many eases there may be some reason in their desire for such protection. But this shows in a still stronger light the unconstitutionality of the tax. It shows that it not only operates as a restriction upon interstate commerce, but that it is intended to have that effect as one of its principal objects.”

See, also, Jewel Tea Co. v. Lee’s Summit, Missouri (D. C.) 198 F. 532, 538.

The fact is that the purpose of this ordinance, masquerading in the guise of a revenue measure, and thinly veiled, is to .cause appellant to cease selling its product to merchants in Harrisonville in competition with local producer’s. The development of rapid transit by means of motor-driven vehicles has introduced a new element in trade and commerce, intrastate and interstate. The real question is whether there is to be freedom of trade and barter between citizens of different communities in the same state, as there is between those of different states, or whether such business activities are to be hampered and in effect prohibited by unreasonable and arbitrary exactions under color of legitimate taxation. I think the judgment below should be reversed.

       “Sec. 7046. Power to license, tax and regulate certain businesses and occupations. — The mayor and board of aldermen shall have power and authority to regulate and to license and to levy and collect a license tax on auctioneers, druggists, hawkers, peddlers, banks, brokers, pawnbrokers, merchants of all kinds, grocers, confectioners, restaurants, butchers, taverns, hotels, public boarding houses, billiard and pool tables and other gaming tables, bowling alleys, hay scales, lumber dealers, livery stable keepers, real estate agents, loan companies, loan agents, public buildings, public halls, opera houses, public grounds, concerts, photographers, bill posters, artists, agents, porters, runners, drummers, public lecturers, public meetings, circuses and shows, for parades and exhibitions, moving picture shows, horse or cattle dealers, patent right dealers, stockyards, wagon yards, inspectors, gaugers, mercantile agents, insurance companies, insurance agents, express companies and express agents, telegraph companies, telephone companies, manufacturing and other corporations or institutions, automobile agencies, and dealers, public garages, automobile repair shops or both combined, dealers in automobile accessories, gasoline filing stations, soft drink stands, ice cream stands, ice cream and soft drink stands combined, soda fountains, street railroad cars, hackney -arriages, omnibuses, carts, drays, transfer and job wagons, ice wagons, oil wagons, , whether wholesale or retail, and all other vehicles, traveling and auction stores, plumbers, and all other business, trades and avocations whatsoever, and fix the rate of carriage of persons and wagonage, dray-age and cartage, of property; and to license, tax, regulate or suppress ordinaries, money brokers, money changers, intelligence and employment offices and agencies, public masquerades, balls, street exhibitions, dance houses, fortune tellers, pistol galleries, corn doctors, private venereal hospitals, museums, menageries, equestrian performances, horoscopic views, telescopic views, lung testers, muscle developers, magnifying glasses, ten-pin alleys, ball alleys, billiard tables, pool and other gaming tables, theatrical or other exhibitions, boxing and sparring exhibitions, shows and amusements, tippling houses, gift enterprises and sales of unclaimed goods by express companies, or common carriers; to license, tax and regulate hackmen, draymen, omnibus drivers, porters and all others pursuing like occupations, with or without vehicles, and to prescribe their compensation; and to regulate, license and restrain runners for steamboats, cars, stages, and public houses; and to license ferries, and to regulate the same and the landing thereof within the limits of the city, and to license and tax auto liveries, auto drays and Jitneys.”


author: ALSCHULER, Circuit Judge.

text:
    COMMISSIONER OF INTERNAL REVENUE v. AMERICAN SEATING CO.
    No. 4257.
    Circuit Court of Appeals, Seventh Circuit.
    June 27, 1931.
    G. A. Youngquist, Asst. Atty.. Gen., and J. Louis Monarch and Andrew D. Sharpe, Sp. Assts. to Atty. Gen. (C. M. Charest, Gep. Counsel, Bureau of Internal Revenue, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.
    Laurence Graves, of Washington, D. C., for respondent.
    Before ALS CHULEE, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

The Commissioner of Internal Revenue brings this proceeding, wherein he complains of the action of the Board of Tax Appeals in determining the deficiency in respondent’s federal income and -profits taxes for the yeár 1921 at $9,117.03, instead of $21,467.50 as determined by the Commissioner. The difference arises out of the amount of taxpayer’s invested capital for that year, the Commissioner denying the propriety of several items which taxpayer claimed, and which the board allowed, as taxpayer’s invested capital.

The Board found as facts (14 B. T. A. 328) that since 1906 taxpayer had been in the business of manufacturing and selling desks and seats for schools and other places of public assembly; that the framework of their product had been made of cast iron, and that in about 1909 taxpayer concluded it was advisable to substitute steel for east iron, and in 1910 began work to this end, incurring expense in changing equipment and in experimentation of $55,296.55 in 1911 and $110,180.05 in 1912, all of which it then charged to its capital investment account; that in 1915 taxpayer purchased for $25,000 certain inventions deemed necessary in the successful production of the steel parts of its products, which amount was likewise charged to invested capital; that its first contract for its steel product was with the St. Louis school board, to which it shipped a large consignment of school equipment, which after installation proved so defective that it was returned to taxpayer and replaced at loss to taxpayer of $33,239.77, and this loss it also then charged to invested capital.

The Commissioner allowed as invested capital a portion of the expense items of 1911 and 1912, but disallowed the items of purchase of inventions, and of loss on defective St. Louis equipment. The Board allowed further so much of the 1911 and 1912 expense items as the Commissioner had disallowed, and allowed also the items of invention purchase and St. Louis contract loss.

Respecting the 1911 and 1912 expense • items, we perceive no substantial objection to their inclusion in invested capital. It was deemed advisable to substitute steel for cast iron, which involved a new venture, at least for this concern. The innovation evidently required very substantial structural changes, which in turn involved engineering assistance and experimental ■operations before ultimate success was achieved. The cost as reported by taxpayer does not appear to be challenged, nor its good faith in including this in its invested capital. In such matters no inflexible rule ean be laid down for determining how much of the cost of experimenting and changing may properly be included in the item of invested capital, and we would not be warranted in setting aside the judgment of the Board respecting what is essentially this question of fact.

Respecting the item of loss on the St. Louis contract, we are inclined to the belief 'that under the facts it should not have been allowed as invested capital. When taxpayer entered into this large contract presumably the experimental stage had been passed. If before making and shipping this large amount of product it was not satisfied that the experimental period had in fact passed, it was at least improvident to make the shipment. If the experimental stage had been passed, the defects in the product shipped would indicate faulty workmanship or materials rather than immaturity in the plan and seheme for perfecting the change from cast iron to steel. In such ease loss attributable to defective workmanship or materials would be a business loss for the year in which it occurred, rather than an augmentation of taxpayer’s invested capital.

Respecting the item of $25,000 for purchase of inventions, the facts are not so clear as might be desirable to sustain its inclusion in invested capital for the year 1921. If in the prosecution of taxpayer’s business it was deemed advisable to purchase these inventions, and they were accordingly purchased in good faith, it is not for the government to substitute its judgment for that of the taxpayer in determining the wisdom thereof.

It is not clear that any patents were in fact acquired. If patent grants were acquired, their capital value in 1921 would be substantially less than at the time of acquirement. Patents are issued for seventeen years, and the capital value of investment therein diminishes as the term passes. If the inventions purchased were secret processes which the purchaser might ever after exclusively employ, the price paid therefor might properly be considered continuing invested capital, at least until the process or invention becomes public property. Taxpayer did expend $25,000 therefor, and the Board found that at the time of payment no patents had been granted, or even applied for. There was evidence that taxpayer still uses the invention or process thus acquired, and it is fair to conclude that taxpayer still has the benefit of that investment. In our judgment the Board’s conclusion upon this item should remain undisturbed.

For respondent it is contended that there was no evidence before the Board upon which it could redetermine this tax. The question arises thus: The same, questions as above considered arose before the Board upon its redetermination of taxpayer’s income and profits taxes for the year 1920. In that case the Board first reached the conclusions as announced upon its redetermination of the tax of 1921. 4 B. T. A. 649. Upon the hearing of the instant case before the Board, taxpayer offered in evidence the findings of fact and opinion of the Board as reached upon the 1920 tax. To its admission the Commissioner objected, upon the ground that the finding of the Board upon the tax for 1920 afforded no evidence admissible upon the hearing for determining the tax for 1921, but the Board admitted them.

The situation here is quite peculiar, from the fact that under the law as applicable to the Board’s determination of the 1920 tax there was no means provided for judicial review of the Board’s findings and conclusions, Then, either party aggrieved by the decision of the board could begin an action in the District Court, where the questions respecting the tax would be heard and determined anew, Revenue Act of 1924, 43 Stat. 253, §§ 274, 279; and, indeed, it happens that as to taxpayer’s 1920 tax the Commissioner, after redetermination by the Board, did begin suit in the District Court, which suit is still pending.

In strictness it may be said that the Board’s finding upon taxpayer’s invested capital in the controversy respecting the 1920 tax does not afford evidence of what taxpayer’s invested capital was for the year 1921. The logic of this might be tested by placing a longer period between the two taxes, say, ten years instead of only one. While it is not probable that there was any substantial difference in taxpayer’s invested capital between 1920 and 1921, 'such improbability would not alone rise to the dignity of a definite legal presumption that this was so.

But the situation is not dominated alone by the fact that the issue was the 1921 tax, and the evidence related to the 1920 tax. At the hearing before the Board there was some testimony offered by taxpayer to indicate that the conditions in 1921 were the same as in 1920; and while this evidence was not as full and complete as might be desired, yet, taken in connection with the strong likelihood of no material change, we feel warranted in concluding that the findings of fact on.the prior hearing in connection with the evidence of similarity of conditions, and the absence of evidence by either party to the contrary, sufficiently showed the situation as to invested capital for 1921.

One ground of objection by the Commissioner to admitting in evidence the 1920 findings was that the offer was not accompanied by a transcript of the evidence upon which the 1920 findings were based. We must assume that this transcript was equally available to both parties, and either might have offered it. In absence of such offer by either party we may assume that the Board’s findings of fact upon the 1920 tax were warranted by the evidence then before the board.

The Commissioner makes the further contention that taxpayer’s invested capital for 1921 should be reduced by the amount of its taxes for 1920 of $207,708.50, as determined by the Commissioner, rather than by the amount of $196,407.99, as determined by the Board. To sustain this view the Commissioner contends that, since that question is now pending in the District Court, the Commissioner’s determination should be adopted until it is definitely changed. We think the Board was correct in concluding that the prima facie effect of its finding remains until a different conclusion is reached in the manner pointed out by law. We therefore sustain the action of the Board on this proposition.

Our conclusion is that the judgment of the Board be affirmed in all respects save in its inclusion in taxpayer’s invested capital of the loss incurred on the St. Louis contract. We hold that this item should be excluded from taxpayer’s invested capital, and accordingly the cause is remanded to the Board of Tax Appeals with direction to determine respondent’s deficiency for 1921 in accordance with i&ese views.


text:
    COMMISSIONER OF INTERNAL REVENUE v. CHICAGO PORTRAIT CO.
    No. 4434.
    Circuit Court of Appeals, Seventh Circuit.
    June 11, 1931.

      G. Á. Youngquist, Asst. Atty. Gen., Se-wall Key and A. H. Conner, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Dean P. Kimball, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for petitioner.
    Albert L. Hopkins, Arnold R. Baar, and Herman T. Reiling, all of Chicago, 111., for respondents.
    • Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

Review is sought of a ruling of the Board of Tax Appeals which sustained respondent’s contention that it was entitled to deduct from its federal income tax for the year 1923, the amount of an income tax for that year which it was required to pay upon its business done in New South Wales. 16 B. T. A. 1129.

Respondent company is an Illinois corporation, and in the year in question owned 51 per cent, of the voting stock of a subsidiary corporation of New South Wales. For that year the Commissioner credited upon the income tax here returned income taxes of the subsidiary corporation levied by, and paid to, the commonwealth of Australia and the Dominion of New Zealand, but refused to credit thereon any part of the income taxes paid by it to New South Wales.

The question involved is whether New South Wales comes within the designation “any foreign country,” as employed in section 238 of the Revenue Act of 1921 (42 Stat. 258),' the applicable part of which is: “See. 238 (a) That in the ease of a domestic corporation the tax imposed by this title, plus the war-profits and excess-profits taxes, if any, shall be credited with the amount of any income, war-profits, and excess-profits taxes paid during the same taxable year to any foreign country, or to any possession of the United States. * * * ”

New South Wales has been a British possession ever since Captain Cook visited it in 1770. Responsible government was conferred upon it in 1855, with a “legislative counsel” appointed by the crown and an “elective legislative assembly.” It was entirely separate and distinct from the other Austra-iian coloniés of Great Britain. ' •

, In 19.00 .the commonwealth of Australia came inti> existence through a pact, to which New South Wales was a party, which adopted a Constitution delegating certain designated powers to the government of the commonwealth. In respect to other matters the constituent parties remained as they were before, each carrying on its own government, very, much as with the states of the United States.

This grant of powers to the commonwealth left New South Wales none the less a self-governing colony. It had and has the power to levy taxes. Income taxes- were levied by it before it entered the commonwealth, and have been ever since, under its sovereign authority to levy such taxes.

The word “country” cannot be given a hard and fast definition, applicable alike to every situation in which it is employed. Petitioner places much reliance upon the manner of its use in the ease of Stairs v. Peaslee, 18 How. 521, 526, 15 L. Ed. 474, where there was involved a question of appraisal of imported goods for tariff purposes. The law required the value to be such as the imported article had at the principal markets of the country from which exported. The article there in question had been shipped from India to Nova Scotia, where there was practically no market for such product, and thence reshipped to the United States.

The importer contended that the appraisal should be based on Halifax, N. S., value, but the appraisers fixed the value as that of London and Liverpool, finding them to be the principal markets for the article of the country whence imported. The court held that under the revenue law it was not a question of law but of fact for the appraisers to decide which place in the entire British dominion was the principal market therefor, saying, “the word country in the revenue laws of the United States has always been construed to embrace all the possessions of a foreign State however widely separated, which are subject to the same supreme executive and legislative control.”

.The opinion discloses also a very good reason for limiting its application to cases where import duties were involved. The court said: “And, moreover, if the construction contended for by the plaintiff could be maintained, it would soon be found that goods would not generally be exported directly to the United States, from the principal market where they were procured, but sent to some other place where they were not in demand, to be shipped to this country, and invoiced far below their real value. The ease before us shows what may be done to evade the payment of the just amount of duty; and neither the words of any revenue law, nor any policy of the government, would justify a construction alike injurious to the public and to the fair and honest importer.”

Since that decision the political status of New South Wales and of some other British colonies has materially changed, so that they now far more nearly partake of the attributes of sovereign, self-governing nations, especially in their commercial relations. It is at least interesting to note that the opinion was rendered in 1855, the same year in which responsible government was first conferred upon New South Wales.

Indeed, if Stairs v. Peaslee were held applicable to section 238 (a) as applied to the entire British Empire, no income tax imposed by any British eolony could be deducted, since only such British income taxes as were imposed by'the government of Great Britain alone would" be deductible. Neither income taxes of the Australian commonwealth, nor of New Zealand, which were in fact deducted, nor of Canada, or other independent self-governing eolony would be deductible.

The evident purpose of section 238 is to prevent duplication of income and war-profits taxation upon the same income, and there is no logical reason why the deduction which the section undertakes to authorize should be that of one form of government or of another, so long as the country by which the tax is levied, and to which it is paid, is foreign to the United States.

We see no reason why the proper administration of section 238 would authorize deduction of such taxes when paid to the commonwealth of Australia or to New Zealand, or both, and be denied when paid to the self-governing colony of New South Wales.

The judgment of the Board of Tax Appeals is affirmed.


text:
    KEOGH v. NEELY.
    No. 4494.
    Circuit Court of Appeals, Seventh Circuit.
    June 11, 1931.
    John W. Keogh, pro se.
    George E. Q. Johnson, U. S. Atty., of Chicago,' 111., and William J. Duiker, Sp. Atty;, Bureau of Internal Revenue, of Washington,. D. C.} for appellee.

      Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
   ALSCHULER, Circuit Judge.

The appeal is from a decree of the District Court dismissing appellant’s bill upon appellee’s motion. The bill charges in substance :

(a) Section 6 of article 4 of the Constitution of the State of Illinois provides that the General Assembly shall apportion the state into senatorial districts every ten years, beginning 1871; that it was the duty of the state to make such apportionment, but that the Legislature has failed in such duty, and has not reapportioned the state since the year 1901, since which time the change in population has been such that the last apportionment has become unjust and unequal, and deprives the inhabitants of certain parts of the state of equal representation in the General Assembly.

(b) That section 4 of article 4 of . the Constitution of the United States, provides that the United States shall guarantee to every state in this Union a republican form of government, and that the failure of the Legislature of the state to reapportion the state denies to the inhabitants of Illinois a republican form of government.

(e) That the ordinance of 1787 provides that the inhabitants of the territory shall receive the benefit of proportionate representation in the Legislature.

(d) That the Illinois Legislature has for more than twenty years refused, and still re.fuses, to justly reapportion the state, and that thereby certain districts of the state, and the inhabitants thereof, are without equal and just representation.

(e) That the government of the United States, under section 4 of article 4 of the United States Constitution, is obligated to enforce section 6 of article 4 of the Constitution of Illinois, requiring apportionment every ten years; that the United States has failed during the past twenty years to observe this mandate and to secure equal representation and a republican form of government for the inhabitants of the state of Illinois; and that because of such fáilure the government of the United States has ceased to have authority under the laws of the United States to levy or collect taxes within the state of Illinois from the citizens thereof.

(f) That appellee is the United States collector of internal revenue for the First district of Illinois.

(g) That- the United States Revenue Act of 1928 is unconstitutional, and in direct violation of art. 5 of the amendments to the United States Constitution, which provides that property shall not be taken without due process of law or without just compensation.

(h) That appellant is a citizen of Illinois residing in said First district, and owns property, and has gross ineome from his property for the taxable year 1929 in excess of $5,000, but that he has not filed any federal income tax return nor paid any tax for that year, and refuses so to do.

(i) That appellee threatens to compel appellant to file federal ineome tax return for the year 192-9 and pay the ineome taxes thereon, and, unless restrained by injunction, will levy upon and sell appellant's property to satisfy such income tax.

The bill asks preliminary and perpetual injunction restraining appellee from taking any steps to enforce collection from appellant of any federal ineome tax under the Revenue Act of 1928 (26 USCA § 2001 et seq.)

In support of the claim of unconstitutionality of the Revenue Act of 1928 it is contended in appellant’s main brief that Amendment 16 to the federal Constitution, authorizing the levying of taxes on incomes, was never lawfully enacted, as provided in article 5 of the federal Constitution, in that it was ratified by the Legislatures of the several states, and not by conventions of the people of the states. United States v. Sprague et al. (D. C.) 44 F.(2d) 967, is relied on. Since the filing of appellant’s brief the order of the District Court in the Sprague Case was reversed by the Supreme Court in 282 U. S. 716, 51 S. Ct. 220, 75 L. Ed. 640, 71 A. L. R. 1381, the court holding lawful ratification by the Legislatures of a constitutional amendment. Upon oral argument appellant vigorously contended that the decision of the Supreme Court is unsound and should not be followed by us; but we are not convinced of our liberty to disregard it.

To the proposition that republican government in Illinois has failed because of the omission of the Illinois General Assembly to redistriet the state as charged in the bill, we cannot yield assent.

The proposition that, because the federal government has not compelled the Illinois Legislature to redistrict the state into senatorial districts, it has failed to carry out the constitutional guaranty to the states of republican form of government, and that thereby the citizens of Illinois are relieved from paying federal income taxes, is entirely -without merit.

Even though the federal government were constitutionally empowered and required to compel the state to obey the state’s constitutional requirement of decennial reapportionment for legislative purposes, the failure of the federal government to conform would not relieve the citizens of the state from the duties and the burdens imposed upon them by the federal Constitution. If this were not so, the citizen, while still remaining in the country, might then with impunity set at naught the federal Constitution and laws, and thus virtually secede from the government. This can in no event be sanctioned, especially since the stirring qvents of the years 1861 to 1865.

Courts have no power to stay the hand of the federal government in the collection of its constitutionally authorized taxes, upon the ground alone that the government has itself been derelict in its observance of other provisions of the federal Constitution, and particularly not when such other provisions in no manner affect the taxes in issue.

We are satisfied that the bill states no cause of action, and was properly dismissed. The decree is affirmed.