Commonwealth v. Kentucky Distilleries & Warehouse Co.

• Decision Date: 25 April 1911
• Citation: 136 S.W. 1032,144 Ky. 263,143 Ky. 314
• Parties: COMMONWEALTH ex rel. HUNTSMAN, State Revenue Agent, v. KENTUCKY DISTILLERIES & WAREHOUSE CO. SAME v. TOM MOORE DISTILLERY. SAME v. THOMPSON et al.
• Court: Kentucky Court of Appeals

143 Ky. 314, 144 Ky. 263

COMMONWEALTH ex rel. HUNTSMAN, State Revenue Agent, v. KENTUCKY DISTILLERIES & WAREHOUSE CO.

SAME v. TOM MOORE DISTILLERY.

SAME v. THOMPSON et al.

Court of Appeals of Kentucky.

April 25, 1911

On Petition for Rehearing, June 15, 1911.

Appeal from Circuit Court, Jefferson County, Common Pleas Branch Third Division.

Appeal from Circuit Court, Nelson County.

Appeal from Circuit Court, Mercer County.

Action by the Commonwealth of Kentucky, on the relation of Earl C Huntsman, State Revenue Agent, against the Kentucky Distilleries & Warehouse Company, against the Tom Moore Distillery, and against John B. Thompson and others. From a judgment for defendants in each case, plaintiff appeals. Reversed with directions for further proceedings.

John F Lockett, Chas. H. Morris, Redford Cherry, A. Scott Bullitt John H. Sullivan, Rowan Hardin, and Rodney W. Keenon, for appellant.

Wm. Marshall Bullitt, Keith L. Bullitt and Bruce & Bullitt, for appellee Kentucky Distilleries & Warehouse Co.

John S. Kelley and J. Smith Barlow, for appellee Tom Moore Distillery.

Tyler Barnett, Chas. M. Gibson, and T. M. Gilmore, Jr., amicus curiæ.

John B. Thompson, for appellees J. B. Thompson and others.

CARROLL J.

These three cases, involving except in a few particulars that will be pointed out the same questions of law and fact, may be disposed of in one opinion. In each case the proceeding was instituted by a revenue agent on behalf of the commonwealth, seeking to assess as omitted property what are called "distiller's storage accounts." The appellees are distillers engaged in the manufacture of whisky, and it is admitted that the storage accounts sought to be assessed have never been listed for taxation. A number of reasons are presented by counsel for appellees why these accounts should not be assessed, even should it be conceded--although it is denied--that the proceedings instituted were sufficient in form and substance to authorize their assessment as omitted property. The accounts sought to be taxed are created in this way: Under the United States internal revenue law, the distiller is compelled to furnish warehouses for the storage of all whiskies that may be manufactured by him, he being allowed to carry in bond without payment of the government tax all of such whiskies for a period of eight years, unless sooner demanded by the owner of the whisky or voluntarily withdrawn by the distiller if he is the owner. The whisky is kept under the direct supervision of the government during the bonded period of eight years, or until it is withdrawn from the bonded warehouse, which it may be at any time upon the payment of the tax due the United States government, and at the end of the bonded period, or when the whisky is withdrawn, this tax must be paid. If the distiller does not withdraw the whisky before the expiration of the eight years bonded period and pay the tax, the government sells the whisky, and, after deducting the amount of the taxes, retains the balance of the proceeds of sale for the benefit of the holder of the warehouse receipt, if the whisky has been sold, or the distiller if it has not. The United States government has estimated from carefully prepared experience tables that each barrel of whisky will lose by evaporation, bad cooperage, and other causes a certain number of gallons of whisky each year that it is in the bonded warehouse; and so, when the tax comes to be paid, the person paying the tax is allowed credit by the whisky so lost, and on this is not required to pay any tax. The distiller may, of course, retain the ownership of the whisky manufactured by him and placed in these bonded warehouses, but it is customary for the distiller to sell the whisky while it is in the bonded warehouses, and issue warehouse receipts for the same. These warehouse receipts differ in some particulars, but the terms and conditions in all of them are substantially alike, and the following may be taken as a sample: "Received in our distillery bonded warehouse, No. ___, situated in ___, in the Fifth District of Kentucky, five barrels of ___ whisky, to be held by us on storage and for account of and subject to the order of ___ deliverable only on payment of the United States taxes on or before the date when due, according to law, and the Kentucky statute, county and all other taxes, and storage on said whisky and on the return of this receipt with the written order of the holder hereof. The holder of this receipt in accepting it, agrees to furnish the money to pay all taxes on the whisky for which this receipt is issued, on or before the date said taxes become due, and failing to do so, all said whisky may, without notice, be sold for the payment of said taxes, and all penalties, costs, warehouse and other charges. Storage 5 cents per. Bbl. per month from date of original inspection. *** It is hereby guaranteed that the loss by natural evaporation and on account of defective cooperage on each and every barrel of this whisky shall not be more than one gallon in excess of the government allowance during the first seven years of the bonded period, and shall not be more than sixteen gallons at the expiration of the eighth year of the bonded period. *** This warehouse receipt is given subject to the warehouse laws of the state of Kentucky, and the laws of the United States in force at this date. ___."

[Signed by the distiller.]

The laws of Kentucky defining and regulating warehousemen found in the Kentucky Statutes in sections 4768-4780 (Russell's St. §§ 2530-2542) give to the distiller as a warehouseman a lien upon the whisky for the charges due to him, and the right to sell the same for the purpose of paying the charges; so that both by the terms of the receipt and the provisions of the statute the distiller is fully protected in the payment of any charges for storage that he may have against the whisky in his bonded warehouses for which warehouse receipts have been issued. As the warehouse receipts are negotiable and transferable, the distiller does not necessarily know who is the owner of the whisky described in the receipt until the receipt is presented and the whisky demanded. When the receipt is presented and the whisky represented by it demanded, the distiller has the right to require before delivering the whisky payment of all taxes and storage fees on each barrel chargeable against it; and if the owner of the warehouse receipt fails to do this, or if he should fail to present the receipt and demand the whisky when under the United States government law the whisky must be withdrawn from the warehouse and the tax paid, the distiller who must then pay the government tax or let the whisky be sold to pay it has a lien upon the whisky to reimburse him for any amount paid as well as to secure him in the payment of storage fees due, and may sell the whisky to satisfy his lien. With this preliminary statement of fact, we will take up and discuss the various reasons presented by counsel for appellees why these storage accounts should not be assessed.

The first contention is that the statements filed by the revenue agent were not sufficient under the statute to sustain the proceedings. The statements in each case set out in substance that the distiller proceeded against was on September 1, ___, the owner of accounts or credits liable for taxation, to wit, storage accounts against whisky in barrels in bonded warehouses, setting out the date when the whisky was manufactured, the number of barrels in the bonded warehouse, the number of years each barrel had remained in the warehouse, and the amount of the storage at five cents per month per barrel chargeable against the whisky by the distiller at the time it was averred these accounts were omitted from assessment. The following may be taken as a sample description of the property as set out in the statement:

------------------------------------------------------------------------------- When Whisky Mfg. No. Bbls. in No. Years in Value Storage Sept. 1, Storage Sept. Warehouse. '05, at 5c per mo. per 1, '05. bbl. ___ ___ ___ ___ Sept. 1, 1897 to 73 5 $219.00 Sept. 15, 1898. -------------------------------------------------------------------------------

It is insisted that the statement is not sufficient because it does not describe the whisky, or give the name of the owner of the warehouse receipt or the person chargeable with the payment of the storage, or aver that the distiller was the owner of storage accounts against any person, firm, or corporation, or that any person, firm, or corporation owed the distiller any storage accounts, or state when the storage would become or be due and collectible. Section 4260 of the Kentucky Statutes (Russell's St. § 6220), relating to the assessment of omitted property by revenue agents, provides that: "The officer proposing to have the property assessed shall file in the clerk's office of the county in which the property may be liable to assessment, a statement containing a description and value of the property proposed to be assessed, *** but no judgment by default or otherwise shall be rendered against such alleged owner unless the statement filed shall contain such a description of the property sought to be assessed as will enable the court to identify it." In Commonwealth v. Glover, 132 Ky. 588, 116 S.W 769, Judge Lassing, writing for the court, delivered an exhaustive opinion on this subject. In that case the revenue agent sought to assess among other things: "Cash on hand, $600.00; accounts, $8,000.00; library, $500.00; pictures, $500.00; jewelry, $250.00; household effects, $2,000.00." In the course of the opinion it is said: "Under the provisions of this act, two things must appear before the revenue agent can...