American Viscose Corporation v. Rothensies

• Decision Date: 06 June 1941
• Docket Number: No. 7582-7587.,No. 7547,7547,7582-7587.
• Citation: 121 F.2d 186
• Parties: AMERICAN VISCOSE CORPORATION v. ROTHENSIES, Collector of Internal Revenue, and six other cases.
• Court: U.S. Court of Appeals — Third Circuit

121 F.2d 186 (1941)

AMERICAN VISCOSE CORPORATION v. ROTHENSIES, Collector of Internal Revenue, and six other cases.

Nos. 7547, Nos. 7582-7587.

Circuit Court of Appeals, Third Circuit.

June 6, 1941.

No. 7547:

Charles J. Biddle, of Philadelphia, Pa. (Drinker, Biddle & Reath, of Philadelphia, Pa., and Jackson, Fuller, Nash & Brophy, of New York City, on the brief), for appellant.

Paul S. McMahon, of Washington, D. C. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and Gerald A. Gleeson, U. S. Atty., and Thomas J. Curtin, U. S. Atty., both of Philadelphia, Pa., on the brief), for appellee.

Nos. 7582-7587:

Wm. H. Annat, of Cleveland, Ohio (Spieth, Taggart, Spring & Annat, of Cleveland, Ohio, and Herbert H. Ward, Jr. of Wilmington, Del., on the brief), for appellants.

Paul S. McMahon, of Washington, D. C. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and Stewart Lynch, U. S. Atty., of Wilmington, Del., on the brief), for appellee.

Before BIGGS, CLARK, and JONES, Circuit Judges.

BIGGS, Circuit Judge.

Substantially identical questions are presented by the seven appeals at bar. Each appellant contends that it (or in the case in which American Viscose Corporation is the appellant, it and its two predecessor corporations) has paid taxes which were illegally collected and received by the United States or its agents pursuant to the provisions of allegedly unconstitutional statutes. The statutes involved are respectively Section 701(a) and (f) of the Revenue Act of 1934, c. 277, 48 Stat. 769, 770, 26 U.S.C.A. Int.Rev.Acts, pages 787, 788 (capital stock tax) in the appeal of the American Viscose Corporation, and Sections 215(a) and (f) and 216(a) of the National Industrial Recovery Act, 48 Stat. 207, 208 (capital stock tax and excess-profits tax), in the appeals of the other corporations. The appellants contend that these statutes are unconstitutional in that they violate the provisions of Section 1 of Article I, clause 1 of Section 8 of Article I and the Fifth Amendment of the Constitution of the United States. Motions to dismiss were filed by the appellees upon the ground that the complaints failed to state any causes of action. These motions were granted by the courts below¹ and the appeals at bar followed.

In the argument before this court, as in the courts below, two questions have been raised. The first may be disposed of without extended discussion. The United States contends that as the complaints disclose no actual and specific injury to the appellants, there is no basis for challenging the constitutionality of the statutes and the courts below could have dismissed the complaints properly without passing upon the substantive question of the constitutionality of the statutes. The complaints (with the exception of that of the American Viscose Corporation) fail to disclose any allegations of injury or damage to the taxpayers by reason of the statutes complained of except by virtue of the imposition of taxes thereunder. The complaint of American Viscose Corporation alleges that if it had been permitted to redeclare the value of its capital stock for the year 1935, its excess-profits tax would have been substantially less. The appellants, other than American Viscose Corporation, do not allege that they attempted to declare the actual values of their respective capital stocks. The American Viscose Corporation in fact alleges that the values declared by it and its predecessor corporations were not the actual or fair market values of their stocks. This, by inference at least, American Viscose Corporation contends was not its fault nor the fault of its predecessors, yet the values placed upon the stocks were selected by the corporations in their own absolute discretion. American Viscose Corporation points out that the values selected cannot be changed apart from the adjustments provided for by subsection (f) of the statutes and contends that these adjustments are insufficient to take care of extraordinary changes which might occur in its capital structure. None of the appellants, however, alleges the occurrence of any extraordinary changes in capital not susceptible of adjustment under subsection (f). Boiled down to essence, the contentions of all the appellants come to this: they have been compelled to pay taxes imposed by unconstitutional statutes.

We can perceive no reason none the less why suits such as those at bar may not be maintained for the recovery of taxes paid under unconstitutional statutes. The statutory provisions were actually enforced against the appellants if we use that word to include the predecessor corporations of the American Viscose Corporation. The burden of the taxes was in fact borne by the appellants or predecessor corporations. If the taxes paid were illegally levied the appellants are entitled to recover them and must be given their day in court to enable them to prove the facts. All this is fundamental. But on the other hand there is no reason why the question of constitutionality of the statutes may not be disposed of upon motions to dismiss. The motions to dismiss filed in the cases at bar are the equivalent of general demurrers at common law. All well pleaded facts are admitted for the purpose of the demurrers. The question presented is whether or not the complaints state a cause of action. It was not improper for the trial courts to pass upon the substantive question of the constitutionality of the statutes under these circumstances. We think it would have been error for the trial courts not to have done so. Such a view is supported by authority. See Moore's Federal Practice, Vol. 1, p. 428, § 7.02. This disposes of the first question presented for our determination.

We come to the more important question of the constitutionality of the statutes sub judice. Of course a taxing statute may be so arbitrary and capricious in its provisions as to fall before the due process clause of the Fifth Amendment. Heiner v. Donnan, 285 U.S. 312, 52 S.Ct. 358, 76 L.Ed. 772; Brushaber v. Union Pacific Ry. Co., 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A. 1917D, 414, Ann.Cas.1917B, 713; Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184, 52 A.L.R. 1081. The appellants contend that the acts of Congress with which we are concerned are arbitrary and capricious because the tax is imposed not upon the basis of the actual values of the property but upon a purely arbitrary or fictitious figure, set up by the taxpayers in their discretion, no standards being prescribed for establishing values; that the phrase "declared value" used in the capital stock tax statutes permits the declaration of value by the guess of the taxpayer; and that the statutes constitute an unconstitutional delegation of legislative authority.

Whether capital stock taxes such as those under consideration be deemed excise taxes imposed by the United States upon the right of corporations to do business or ad valorem taxes, it can not be said that the taxes are of necessity so arbitrary in their operation as to be confiscatory. We think that these capital stocks taxes are ad valorem taxes in which the values set upon the capital stocks of corporations are intended to be measured by the very persons, viz., corporate officers, most capable of ascertaining these values. We cannot assume that any corporation will set absurd, fictitious, or whimsical values upon its capital stocks in order to reduce the amount of taxes which may be lawfully due, particularly when it is borne in mind that the values set must serve as the bases for excess-profits tax. Capital stock tax returns must be sworn to and it cannot be presumed that a responsible corporate officer will make a false return under oath. A tax statute may not be declared unconstitutional merely because it provides that the value upon which the tax is based shall be left to the statement of the taxpayer. It may be unwise to allow value to be determined in this way, but the wisdom of tax legislation is for Congress and not for the courts.² Even the point of lack of wisdom is difficult to maintain upon consideration of the concomitant excess-profits tax which imposes a heavy burden upon a tax-paying corporation if it has placed the value of its capital stock at too low a figure.

As to the argument that the statute sets up no standards for the establishing of the values of capital stock we...