Chas Steward Mach Co v. Davis 1937, 837

Decision Date24 May 1937
Docket NumberNo. 837,837
PartiesCHAS. C. STEWARD MACH. CO. v. DAVIS. Argued April 8-9, 1937
CourtU.S. Supreme Court

[Syllabus from pages 548-550 intentionally omitted] Messrs. William Logan Martin, of Birmingham, Ala., Neil P. Sterne, of Anniston, Ala., and Walter Bouldin, of Birmingham, Ala., for petitioner.

Homer S. Cummings, Atty. Gen.,

[Argument of Counsel from pages 551-553 intentionally omitted] Charles E. Wyzanski, Jr., Sp. Asst. Atty. Gen., and Robert H. Jackson, Asst. Atty. Gen., for respondent.

[Argument of Counsel from pages 553-573 intentionally omitted]

Page 573

Mr. Justice CARDOZO delivered the opinion of the Court.

The validity of the tax imposed by the Social Security Act (42 U.S.C.A. §§ 301—1305) on employers of eight or more is here to be determined.

Petitioner, an Alabama corporation, paid a tax in accordance with the statute, filed a claim for refund with the Commissioner of Internal Revenue, and sued to recover the payment ($46.14), asserting a conflict between the statute and the Constitution of the United States. Upon demurrer the District Court gave judgment for the defendant dismissing the complaint, and the Circuit Court of Appeals for the Fifth Circuit affirmed. 89 F.(2d) 207. The decision is in accord with judgments of the Supreme Judicial Court of Massachusetts (Howes Brothers Co. v. Massachusetts Unemployment Compensation Commission, December 30, 1936, 5 N.E.(2d) 720), the Supreme Court of California (Gillum v. Johnson, November 25, 1936, 62 P.(2d) 1037), and the Supreme Court of Alabama (Beeland Wholesale Co. v. Kaufman, March 18, 1937, 174 So. 516). It is in conflict with a judgment of the Circuit Court of Appeals for the First Circuit, from which one judge dissented. Davis v. Boston & Maine R.R. Co., April 14, 1937, 89 F. (2d) 368. An important question of constitutional law being involved, we granted certiorari. 300 U.S. 652, 57 S.Ct. 673, 81 L.Ed. —-.

Page 574

The Social Security Act (Act of August 14, 1935, c. 531, 49 Stat. 620, 42 U.S.C., c. 7 (Supp.II), 42 U.S.C.A. §§ 301—1305) is divided into eleven separate titles, of which only titles IX and III are so related to this case as to stand in need of summary.

The caption of title IX is 'Tax on Employers of Eight or More.' Every employer (with stated exceptions) is to pay for each calendar year 'an excise tax, with respect to having individuals in his employ,' the tax to be measured by prescribed percentages of the total wages payable by the employer during the calendar year with respect to such employment. Section 901, 42 U.S.C.A. § 1101. One is not, however, an 'employer' within the meaning of the act unless he employs eight persons or more. Section 907(a), 42 U.S.C.A. § 1107(a). There are also other limitations of minor importance. The term 'employment' too has its special definition, excluding agricultural labor, domestic service in a private home, and some other smaller classes. Section 907(c), 42 U.S.C.A. § 1107(c). The tax begins with the year 1936, and is payable for the first time on January 31, 1937. During the calendar year 1936 the rate is to be 1 per cent., during 1937 2 per cent., and 3 per cent. thereafter. The proceeds, when collected, go into the Treasury of the United States like internal revenue collections generally. Section 905(a), 42 U.S.C.A. § 1105(a). They are not earmarked in any way. In certain circumstances, however, credits are allowable. Section 902, 42 U.S.C.A. § 1102. If the taxpayer has made contributions to an unemployment fund under a state law, he may credit such contributions against the federal tax, provided, however, that the total credit allowed to any taxpayer shall not exceed 90 per centum of the tax against which it is credited, and provided also that the state law shall have been certified to the Secretary of the Treasury by the Social Security Board as satisfying certain minimum criteria. Section 902. The provisions of section 903 (42 U.S.C.A. § 1103) defining those criteria are stated in the

Page 575

margin.1 Some of the conditions thus attached to the allowance of a credit are designed to give assurance that the state unemployment compensation law shall be one in substance as well as name. Others are designed to give assurance that the contributions shall be protected against loss after payment to the state. To this last end there

Page 576

are provisions that before a state law shall have the approval of the Board it must direct that the contributions to the state fund be paid over immediately to the Secretary of the Treasury to the credit of the 'Unemployment Trust Fund.' Section 904 (42 U.S.C.A. § 1104) establishing this fund is quoted below.2 For the moment it is enough to say that the fund is to be held by the Secretary of the Treasury, who is to invest in government securities any portion not required in his judgment to meet current withdrawals. He is authorized and directed to pay out of the fund to any competent state agency such sums as it may duly requisition from the amount standing to its credit. Section 904(f), 42 U.S.C.A. § 1104(f).

Page 577

Title III, which is also challenged as invalid, has the caption 'Grants to States for Unemployment Compensation Administration.' Under this title, certain sums of money are 'authorized to be appropriated' for the purpose of assisting the states in the administration of their unemployment compensation laws, the maximum for the fiscal year ending June 30, 1936, to be $4,000,000, and $49,000,000 for each fiscal year thereafter. Section 301, 42 U.S.C.A. § 501. No present appropriation is made to the extent of a single dollar. All that the title does is to authorize future appropriations. Actually only $2,250,000 of the $4,000,000 authorized was appropriated for 1936 (Act of Feb. 11,

Page 578

1936, c. 49, 49 Stat. 1109, 1113) and only $29,000,000 of the $49,000,000 authorized for the following year (Act of June 22, 1936, c. 689, 49 Stat. 1597, 1605). The appropriations when made were not specifically out of the proceeds of the employment tax, but out of any moneys in the Treasury. Other sections of the title prescribe the method by which the payments are to be made to the state (section 302, 42 U.S.C.A. § 502) and also certain conditions to be established to the satisfaction of the Social Security Board before certifying the propriety of a payment to the Secretary of the Treasury (section 303, 42 U.S.C.A. § 503). They are designed to give assurance to the federal government that the moneys granted by it will not be expended for purposes alien to the grant, and will be used in the administration of genuine unemployment compensation laws.

The assault on the statute proceeds on an extended front. Its assailants take the ground that the tax is not an excise; that it is not uniform throughout the United States as excises are required to be; that its exceptions are so many and arbitrary as to violate the Fifth Amendment; that its purpose was not revenue, but an unlawful invasion of the reserved powers of the states; and that the states in submitting to it have yielded to coercion and have abandoned governmental functions which they are not permitted to surrender.

The objections will be considered seriatim with such further explanation as may be necessary to make their meaning clear.

First: The tax, which is described in the statute as an excise, is laid with uniformity throughout the United States as a duty, an impost, or an excise upon the relation of employment.

1. We are told that the relation of employment is one so essential to the pursuit of happiness that it may not be burdened with a tax. Appeal is made to history. From the precedents of colonial days, we are supplied with

Page 579

illustrations of excises common in the colonies. They are said to have been bound up with the enjoyment of particular commodities. Appeal is also made to principle or the analysis of concepts. An excise, we are told, imports a tax upon a privilege; employment, it is said, is a right, not a privilege, from which it follows that employment is not subject to an excise. Neither the one appeal nor the other leads to the desired goal.

As to the argument from history: Doubtless there were many excises in colonial days and later that were associated, more or less intimately, with the enjoyment or the use of property. This would not prove, even if no others were then known, that the forms then accepted were not subject to enlargement. Cf. Pensacola Teleg. Co. v. Western Union Telegraph Co., 96 U.S. 1, 9, 24 L.Ed. 708; In re Debs, 158 U.S. 564, 591, 15 S.Ct. 900, 39 L.Ed. 1092; South Carolina v. United States, 199 U.S. 437, 448, 449, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737. But in truth other excises were known, and known since early times. Thus in 1695 (6 & 7 Wm. III, c. 6), Parliament passed an act which granted 'to His Majesty certain Rates and Duties upon Marriages, Births and Burials,' all for the purpose of 'carrying on the War against France with Vigour.' See Opinion of the Justices, 196 Mass. 603, 609, 85 N.E. 545, 547. No commodity was affected there. The industry of counsel has supplied us with an apter illustration where the tax was not different in substance from the one now challenged as invalid. In 1777, before our Constitutional Convention, Parliament laid upon employers an annual 'duty' of 21 shillings for 'every male Servant' employed in stated forms of work.3

Page 580

Revenue Act of 1777, 17 George III, c. 39.4 The point is made as a distinction that a tax upon the use of male servants was thought of as a tax upon a luxury. Davis v. Boston & Maine R.R. Co., supra. It did not touch employments in husbandry or business. This is to throw over the argument that historically an excise is a tax upon the enjoyment of commodities. But the attempted distinction, whatever may be thought of its validity, is inapplicable to a statute of Virginia passed in 1780. There a tax of 3 pounds, 6 shillings, and 8 pence was to...

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