Dickert v. Hickey

• Decision Date: 09 November 1940
• Citation: 47 F. Supp. 577
• Parties: DICKERT v. HICKEY, Collector of Internal Revenue, et al.
• Court: U.S. District Court — Southern District of New York

47 F. Supp. 577

DICKERT v. HICKEY, Collector of Internal Revenue, et al.

District Court, S. D. New York.

November 9, 1940.

Budd, Coffey & Bertine, of Bronxville, N. Y. (Philip A. Obst, of New York City, of counsel), for complainant.

John T. Cahill, U. S. Atty., of New York City (William L. Lynch, of New York City, of counsel), for defendants.

HULBERT, District Judge.

Plaintiff, who maintains and operates a restaurant on East First Street in the City of Mount Vernon, in this District, seeks to permanently enjoin the defendants from executing a warrant of distraint to collect $403.70 (plus interest) assessed as a tax against the plaintiff on 367 gallons of alcohol, and from making any other levies on the same assessment.

It is alleged in the complaint that the tax was assessed upon liquor "possessed by plaintiff" which he denies, and that the assessment was made pursuant to Title II, Section 35, 41 Statutes, 317 of the Act of October 28th 1919, which is Title 27 U.S. C.A. §§ 1 to 89, popularly or otherwise known as the National Prohibition Act.

Plaintiff contends that the "tax" is a penalty and therefore uncollectible by a warrant of distraint but only by civil or criminal suit with a right to trial by jury, and that failure to enjoin the execution of the warrant of distraint would permit a violation of due process guaranteed by the United States Constitution, and that there is no adequate remedy at law.

Prior to the National Prohibition Act the Congress had imposed a tax under the revenue laws on distilled spirits (14 Stat. 480) and no distinction was then made between tax on spirits for beverage uses and non-beverage purposes. Such distinction was made for the first time by Section 300 of the Revenue Act of 1917, 40 Stat. 300. That law fixed $2.20 per proof gallon on spirits withdrawn for non-beverage use and $3.20 per gallon for those withdrawn for beverage use. Section 600 (a) of the Revenue Act of 1918, 40 Stat. 1057, continued the distinction but changed the beverage rate from $2.30 to $6.40 per gallon while the non-beverage rate remained at $2.20.

The National Prohibition Act became effective Jan. 16, 1920. Section 35 of Title II of that Act, Title 27 U.S.C.A. § 52, provided:

"All provisions of law that are inconsistent with this act chapter are repealed only to the extent of such inconsistency and the regulations herein provided for the manufacture or traffic in intoxicating liquor shall be construed as in addition to existing laws. This act chapter shall not relieve anyone from paying any taxes or other charges imposed upon the manufacture or traffic in such liquor. No liquor revenue stamps or tax receipts for any illegal manufacture or sale shall be issued in advance, but upon evidence of such illegal manufacture or sale a tax shall be assessed against, and collected from, the person responsible for such illegal manufacture or sale in double the amount now provided by law, with an additional penalty of $500 on retail dealers and $1,000 on manufacturers. The payment of such tax or penalty shall give no right to engage in the manufacture or sale of such liquor, or relieve anyone from criminal liability, nor shall this act chapter relieve any person from any liability, civil or criminal, heretofore or hereafter incurred under existing laws."

On November 23, 1921, the so-called Willis-Campbell Act, 42 Stat. 222, was passed supplementing the National Prohibition Act; Section 5 thereof, 27 U.S.C.A. § 3, provided as follows:

"All laws in regard to the manufacture and taxation of and traffic in intoxicating liquor, and all penalties for violations of such laws that were in force when the National Prohibition Act was enacted on October 28, 1919, shall be and continue in force, as to both beverage and non-beverage liquor, except such provisions of such laws as are directly in conflict with any provision of the National Prohibition Act or of this Act this title; but if any act is a violation of any of such laws and also of the National Prohibition Act or of this Act this title, a conviction for such act or offense under one shall be a bar to prosecution therefor under the other."

On the very same day the Revenue Act of 1921, 42 Stat. 227, was passed. It amended Section 600 (a) of the Revenue Act of 1918 to provide for the imposition of an additional tax of $4.20 per gallon on distilled spirits diverted to beverage uses after withdrawal from bond for non-beverage purposes and provided that the tax at non-beverage rate of $2.20 per gallon had been paid. § 600. Thus the total tax asserted against such diverted spirits equalled the $6.40 rate payable under the Revenue Act of 1918 on spirits withdrawn for beverage uses. Apparently because the new amendment was so drawn that spirits withdrawn for industrial use and then diverted for beverage purposes escaped the $6.40 tax, the Congress again amended Section 600 (a) of the Revenue Act of 1918 and in Section 900 of the Revenue Act of 1926, 44 Stat. 9, 26 U.S.C.A. Int.Rev.Acts, page 302, provided as follows:

"Sec. 900. Subdivision (a) of section 600 of the Revenue Act of 1918, as amended, is amended to read as follows:

"`Sec. 600. (a) There shall be levied and collected on all distilled spirits now in bond or that have been or that may be hereafter produced in or imported into the United States, in lieu of the internal-revenue taxes now imposed thereon by law, an internal-revenue tax at the following rates, to be paid by the distiller or importer when withdrawn, and collected under the provisions of existing law:

* * * * * *

"`(3) On and after January 1, 1928, $1.10 on each proof gallon or wine gallon when below proof and a proportionate tax at a like rate on all fractional parts of such proof or wine gallon.

"`(4) On and after the enactment of the Revenue Act of 1926, on all distilled spirits which are diverted to beverage purposes or for use in the manufacture or production of any article used or intended for use as a beverage there shall be levied and collected a tax of $6.40 on each proof gallon or wine gallon when below proof, and a proportionate tax at a like rate on all fractional parts of such proof or wine gallon, to be paid by the person responsible for such diversion. If a tax at the rate of $2.20, $1.65, or $1.10 per proof or wine gallon has been paid upon such distilled spirits a credit of the tax so paid shall be allowed in computing the tax imposed by this paragraph.'"

The defendant denies that the assessment complained of was made under the provisions of Section 35, Title II of the National Prohibition Act, and contends that the assessment was made under the provisions of the Revenue Act for the reason that the face amount of the assessment of $1.10 per gallon on 367 gallons, making a total of $403.70, shows that it is the basic tax which is being claimed from the plaintiff.

While it is true that impositions under the National Prohibition Act, and particularly Section 35 thereof, were penalties, the collection of which could be enjoined (Lipke v. Lederer, 1922, 259 U.S. 557, 42 S.Ct. 549, 66 L.Ed. 1061; Regal Drug Corp. v. Wardell, 1922, 260 U.S. 386, 43 S. Ct. 152, 67 L.Ed. 318) the Government thereafter sought to forfeit, by libel proceedings under a provision of the revenue law, an automobile in which untaxpaid illicit liquors had been transported or concealed, and the Supreme Court discussed at great length the provisions of the National Prohibition Act as contrasted to the provisions of the Revenue Law and found them not to be in conflict. United States v. One Ford Coupé Automobile, 1926, 272 U.S. 321, 47 S.Ct. 154, 71 L.Ed. 279, 47 A. L.R. 1025. In referring to the basic tax on liquor the Court said in that case at pages 326-329 of 272 U.S., at page 156 of 47 S.Ct.:

"First. The claimant contends that, at the time of the seizure, the law did not impose any tax upon liquor illicitly made. Congress has power to tax such liquor. United States v. Yuginovich, 256 U.S. 450, 462, 41 S.Ct. 551, 65 L.Ed. 1043; United States v. Stafoff, 260 U.S. 477, 480, 43 S.Ct. 197, 67 L.Ed. 358. By Rev.Stats. § 3248 26 U.S.C.A. Int.Rev.Code, § 2800(c) the tax attaches to distilled spirits `as soon as it is in existence as such,' (United States Fidelity & Guaranty Co. v. United States 4 Cir., 220 F. 592), and upon its production the tax becomes a first lien thereon (United States v. Ulrici, 111 U.S. 38, 42, 4 S.Ct. 288, 28 L.Ed. 344). The Revenue Act of 1918 (February 24, 1919, c. 18, § 600, 40 Stat. 1057, 1105, * * *) lays the tax `on all distilled spirits now in bond or that have been or that may be hereafter produced in or imported into the United States.' The provision in Section 600b of the act, * * * concerning liquor which could not during the period of war-prohibition be lawfully sold or removed, did not remit the tax; it merely deferred the time for payment. It is clear that, before the enactment of the National Prohibition Act, it imposed the basic production tax upon all distilled spirits, although illicitly made.

"The continued existence of taxes upon illicit liquor is indicated in Section 35 of the National Prohibition Act (p. 317), * * * which provides: `This act shall not relieve anyone from paying any taxes or other charges imposed upon the manufacture or traffic in such liquor.' That Congress in enacting that law would intentionally have exempted illicit liquor from taxation, is not likely. Moreover, we are not dealing with the construction of the law as enacted in 1919. The Willis-Campbell Act; (November 23, 1921, c. 134, § 5, 42 Stat. 222, 223 * * *), supplemental thereto, continued in...