Barclay Co v. Edwards, 547

• Citation: 45 S.Ct. 348,69 L.Ed. 703,267 U.S. 442
• Decision Date: 09 March 1925
• Docket Number: No. 547,547
• Parties: BARCLAY & CO., Inc., v. EDWARDS, Collector of Internal Revenue
• Court: United States Supreme Court

267 U.S. 442

45 S.Ct. 348

69 L.Ed. 703

BARCLAY & CO., Inc.,

v EDWARDS, Collector of Internal Revenue.

No. 547.

Argued Nov. 24, 1924.

Decided March 9, 1925.

Messrs. Porter J. McCumber, of Washington, D. C., and Franklin Grady, of New York City, for plaintiff in error.

[Argument of Counsel from pages 442-446 intentionally omitted] Mr. James M. Beck, Sol. Gen., of Washington, D. C., for defendant in error.

Mr. Chief Justice TAFT delivered the opinion of the Court.

On December 15, 1924, Mr. Justice McKenna delivered the opinion of this court in the case of National Paper & Type Co. v. Frank K. Bowers, Collector (No. 320 of the present term) 266 U. S. 373, 45 S. Ct. 133, 69 L. Ed. ——. That case was heard at the same time with this. They were suits to recover taxes which it was claimed had been illegally collected, for the reason that the statutes under which they had been exacted deprived the taxpayers of their property without due process of law. The statute attacked in No. 320 was the income tax of 1921; that in this case was the income tax of 1918.

The plaintiffs in the two cases were corporations of this country engaged in the business of the purchase and manufacture of personal property within the United States and the sale thereof without the United States. Their objection to the taxes both of 1921 and 1918 was that they were subjected to a tax on all of their net income, including profits made by them in the sale of their goods abroad, while foreign corporations engaged in the same business of buying and manufacturing goods in this country and selling them abroad were not taxed upon their whole net income but were exempted from a tax on all or a part of it.

Another objection to the tax was that the tax in both instances was a tax on exports. That was disposed of by this court in opinion No. 320 by reference to the case of Peck & Co. v. Lowe, 247 U. S. 165, 38 S. Ct. 432, 62 L. Ed. 1049.

The court further pointed out that in respect to what was called discrimination in favor of foreign corporations Congress might adopt a policy calculated to serve the best interests of this country in dealing with citizens or subjects of another country and might properly say as to earnings from business begun in one country and ending in another that the net income of foreign subjects or citizens should be left to the taxation of their own government or to that having jurisdiction of the sales; that the question of taxing foreign corporations on such income might properly be affected by the consideration that domestic corporations had the power of the United States to protect their interests and redress their wrongs in whatever part of the world their business might take them, while the foreign corporations must look to the country of their origin for protection against injury or redress of losses occurring in countries other than the United States. Having disposed of No. 320 for these reasons in favor of the government by affirming the judgment below, a short opinion was delivered by Mr. Justice McKenna in No. 547 (267 U. S. 442, 45 S. Ct. 135, 69 L. Ed. 703), in which he said that the charge of invalidity in that case was on the same grounds as those set up in No. 320, and that upon authority of the decision in No. 320 the judgment should be affirmed. A petition for rehearing seeks now to differentiate the present case from that considered and decided in No. 320.

The Revenue Act of 1918 (40 Stat. 1076, § 230 [Comp. St. Ann. Supp. 1919, § 6336 1/8 nn]) provided for a tax of 12 per cent. on the net income in excess of certain credits upon domestic corporations, but contained this provision in case of foreign corporations, under section 233(b):

'In the case of a foreign corporation gross income includes only the gross income from sources within the United States, including the interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States.' 40 Stat. 1077 (section 6336 1/8 p).

The Revenue Act of 1921 taxed the net income (meaning the gross income, less certain deductions) of domestic corporations. 42 Stat. 252, 254, §§ 230, 232 (Comp. St. Ann. Supp. 1923, §§ 6336 1/8 nn, 6336 1/8 oo). The same section, No. 232, provided that:

'In the case of a foreign corporation * * * the computation shall also be made in the manner provided in section 217.'

The relevant parts of sections 217 and 233 (Comp. St. Ann. Supp. 1923, §§ 6336 1/8 hh, 6336 1/8 p) were as follows:

'Sec. 217. (a) That in the case of a non-resident alien individual or of a citizen entitled to the benefits of section 262. * * *

'(e) Items of gross income, expenses, losses and deductions, other than those specified in subdivisions (a) and (c), shall be allocated or apportioned to sources within or without the United States under rules and regulations prescribed by the Commissioner with the approval of the Secretary. * * * Gains, profits and income from (1) transportation or other services rendered partly within and partly without the United States, or (2) from the sale of personal property produced (in whole or in part) by the taxpayer within and sold without the United States, or produced (in whole or in part) by the taxpayer without and sold within the United States, shall be treated as derived partly from sources within the partly from sources without the United States. Gains, profits and income derived from the purchase of personal property within and its sale without the United States or from the purchase of personal property without and its sale within the United States, shall be treated as derived entirely from the country in which sold. * * *' 42 Stat. 243, 244, 245.

'Sec. 233. * * *

'(b) In the case of a foreign corporation, gross income means only gross income from sources within the United States, determined (except in the case of insurance companies subject to the tax imposed by sections 243 or 246) in the manner provided in section 217.' 42 Stat. 254.

Counsel contend in their petition for rehearing that the Revenue Act of 1921 provided with respect to the manufacture within the United States by foreign corporations of goods which they sold in foreign countries that the income derived should be allocated to sources within the United States and imposed a tax on that part of such income allocated to manufacture, whereas the Revenue Act of 1918, under which this case arose exempted from tax all income of foreign corporations derived from the manufacture or purchase of goods within the United States which they sold or disposed of in foreign countries. But we do not think that that distinction makes any difference in the application of the...