Boyce v. Buscaglia
| Decision Date | 02 June 1948 |
| Docket Number | Civ. No. 5089. |
| Parties | BOYCE et al. v. BUSCAGLIA. |
| Court | U.S. District Court — District of Puerto Rico |
E. T. Fiddler, of San Juan, P.R., for plaintiffs.
George A. Malcolm, Atty. Gen. of Puerto Rico, for Rafael A. Buscaglia, Treasurer of P. R.
This suit was brought by the plaintiffs as Trustees of an express trust praying the Court for instructions as to their duty to their beneficiaries in connection with amounts which they withhold from dividends payable to the latter as income tax payable to the Treasurer of Puerto Rico under the Insular Income Tax laws. The Treasurer of Puerto Rico and The National City Bank of New York as withholding agent were made parties.
The instructions requested are as follows:
1. That the Court instruct these plaintiffs as to whether or not they are required to withhold any amounts whatsoever from dividends due to their beneficiaries not residing in Puerto Rico.
2. That this Court instruct these plaintiffs as to whether or not they are required to withhold any amounts whatsoever from payments due to their beneficiaries who are citizens of States of the United States.
3. That this Court instruct these plaintiffs as to whether or not these Trustees may pay in the United States dividends due to beneficiaries not residing in Puerto Rico without withholding any part thereof for payments to the Treasurer of Puerto Rico.
The facts as stated in the complaint are as follows:
The plaintiffs are Trustees of an express trust entered into in Baltimore, Maryland, on January 16, 1934. Of the Trustees six are residents of States of the United States and one is a resident of Puerto Rico. They are engaged in planting, cultivating and processing sugar cane in Puerto Rico and in processing of sugar cane of independent farmers. The interests of the beneficiaries of the Trust are represented by shares of beneficial interest.
The trustees pay income tax to the Government of Puerto Rico on the net income earned by them, under the provisions of the Income Tax Act of 1924 of Puerto Rico, Laws 1925, No. 74, as amended. They distribute from time to time a certain part of the net income over and above the amount paid as income tax, among their beneficiaries in proportion to the shares held by them. During the fiscal year beginning July 1, 1947, the Trustees directed three payments to the preferred shareholders at the rate of $1.25 per share. These payments were made on August 20, 1947, November 20, 1947, and February 20, 1948. Lists of the preferred shareholders are attached to the complaint. The amounts to which the preferred shareholders were entitled were delivered to the San Juan Branch of The National City Bank of New York for payment to the beneficiaries in San Juan or at the Bank's main office in New York, at the option of the respective beneficiaries.
The holders of preferred shares consist in part of citizens and residents of Puerto Rico, in part of corporations organized in States of the United States not doing business in Puerto Rico, and in part of citizens of States of the United States not residing in Puerto Rico. Under the provisions of Section 22 of the Income Tax Act of Puerto Rico, as amended, The National City Bank of New York as withholding agent has deducted and withheld from the amounts paid to each of the preferred shareholders who are not residents and not citizens of Puerto Rico, 29% of the amount thereof to be held and paid to the Treasurer of Puerto Rico.
The pertinent parts of Section 22 are as follows:
(A) All persons, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of The People of Puerto Rico, and all corporations and partnerships having the control, receipt, custody, disposal, or payment of interest, rent salaries, wages, commissions, premiums, annuities, compensations, remunerations, emoluments, or other gains, dividends, participation in partnership and corporation profits, and other fixed or determinable annual or periodical profits or income, of any nonresident individual not a citizen of Puerto Rico, shall (except as otherwise provided in regulations prescribed by the Treasurer under Section 19) deduct and withhold from such annual or periodical gains, dividends, profits or income, a tax equal to twenty-nine % 29 per cent thereof; Provided, That in the case of securities whose owners are unknown, said tax shall be deducted and withheld from the interest on such securities.
(B) Every person, partnership or corporation obliged under this section to deduct and withhold any tax, shall make a return thereof, on or before March 15 of each year and shall, on or before June 15, pay the tax to the officer of The People of Puerto Rico, authorized to receive it. Every such person, partnership or corporation is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any payment made in accordance with the provisions of this section.
Section 12 of the Income Tax Law of Puerto Rico of 1924, as amended, provides as follows: Sec. 12: There shall be levied, collected and paid for each taxable year on the net income of every individual a normal tax of seven (7) per cent of the amount of the net income in excess of the credits provided in Section 18, Provided, That on the income of every person not a resident who is not a citizen of Puerto Rico there shall be levied, collected, and paid for each taxable year, a normal tax of twenty-nine (29) percent on the amount of the net income.
Section 18(d) of the Income Tax Law of Puerto Rico of 1924, as amended, provides as follows: (d) The credit provided for under subdivisions (b) and (c) shall not be allowed in the case of a non-resident individual who is not a citizen of Puerto Rico.
It is alleged in the complaint that under Section 18(d) of the Income Tax Act, nonresident individuals, including citizens of the States of the United States not residing in Puerto Rico, are denied credits allowed to citizens of Puerto Rico consisting of a personal exemption of $800 in the case of non-married persons, of $2,000 in the case of a married person living with husband or wife, and of $400 for each dependent. It is also alleged that Section 19(f) of the Act provides that no personal exemption or credits shall be allowed to non-resident individuals who are not citizens of Puerto Rico, and further that deductions allowed to these individuals shall not exceed 10% of their gross income from sources within Puerto Rico, and that no such limit is placed on deductions allowed taxpayers who are citizens of Puerto Rico.
Since Puerto Rico is not a State of the Union, it does not fall within Section 2 of Article IV of the Constitution generally known as the immunities clause.
However, on August 5, 1947, Section 2 of the Organic Act of Puerto Rico was amended by Congress of the United States adding the following clause at the end thereof: "The rights, privileges, and immunities of citizens of the United States shall be respected in Puerto Rico to the same extent as though Puerto Rico were a State of the Union and subject to the provisions of Paragraph 1 of Section 2 of Article IV of the Constitution of the United States."
The Trustees maintain that if the amendment to the Organic Act above quoted applies to this situation, no part of the income payable to citizens of States of the United States should be withheld, and that if the above amendment does not apply to this situation, the Trustees would incur penalties to the Treasurer of Puerto Rico in case they did not withhold the tax and would be personally responsible therefor. They also maintain that if they improperly withhold the tax and pay it into the Treasury, they might be subject to suits by their beneficiaries for the amounts withheld. They, therefore, ask for instructions of this Court as to their duties alleging that the jurisdiction of this Court depends on the fact that this is a suit of a civil nature arising under the Constitution and laws of the United States.
The Trustees also ask to be instructed as to whether or not they should withhold the tax in any case, whether or not the beneficiaries are citizens of States of the United States, in those cases where the beneficiaries receive their dividends in New York and therefore outside the jurisdiction of Puerto Rico. The question on this point is whether or not the Trustees, having transferred funds outside of Puerto Rico, are under any obligation whatsoever to this jurisdiction.
The Attorney General of Puerto Rico on behalf of the Treasurer of Puerto...
To continue reading
Request your trial
-
U.S. Brewers Ass'n, Inc. v. Perez, 78-1393
...Aff'd on other grounds, 192 F.2d 1 (1st Cir. 1951), Cert. denied, 342 U.S. 954, 72 S.Ct. 626, 96 L.Ed. 709 (1952); Boyce v. Buscaglia, 77 F.Supp. 753, 756-57 (D.P.R.1948). ...
-
UNITED STATES BREWERS ASS'N v. Cesar Perez, Civ. No. 78-1370.
...at pp. 901-902. This clearly flexible approach to the language of 48 U.S.C. § 872 has been embraced by this Court. In Boyce v. Buscaglia, 77 F.Supp. 753 (D.C.P.R., 1948), the Court discussed the portent of the Butler Act within the context of an action brought by certain trustees of an expr......
-
Shepard v. First Federal Sav. Bank of Puerto Rico
...275 U.S. 56, 48 S.Ct. 23, 72 L.Ed. 152 (1927); Paul Smith Construction Co. v. Buscaglia, 140 F.2d 900 (1st Cir.1944); Boyce et al. v. Buscaglia, 77 F.Supp. 753 (1948); Carrier Corp. v. Pérez, 677 F.2d 162 (1st The case law has defined the concept of "adequate remedy" as being satisfied if t......
-
Seatec Intern., Ltd. v. SECRETARY OF THE TREAS., Civ. No. 81-329 (PG).
...aff'd. on other grounds 192 F.2d 1 (1 Cir., 1951), cert. den. 342 U.S. 954, 72 S.Ct. 626, 96 L.Ed. 709 (1952); Boyce v. Buscaglia, 77 F.Supp. 753, 756-57 (D.C.P.R., 1948). In order to decide whether we have jurisdiction in this case we must answer the question of whether the plaintiff has r......