Doscher v. Query

• Decision Date: 15 August 1927
• Citation: 21 F.2d 521
• Parties: DOSCHER et al. v. QUERY et al., South Carolina Tax Commission. J. S. PINKUSSOHN CIGAR CO. v. SAME.
• Court: U.S. District Court — District of South Carolina

21 F.2d 521 (1927)

DOSCHER et al. v. QUERY et al., South Carolina Tax Commission.

J. S. PINKUSSOHN CIGAR CO. v. SAME.

District Court, E. D. South Carolina.

August 15, 1927.

Shimel & Rittenberg, J. D. E. Meyer, and Stoney & McGowan, all of Charleston, S. C., for complainants.

John M. Daniel, Atty. Gen., of South Carolina, Cordie Page, Asst. Atty. Gen., of South Carolina, and J. Fraser Lyon, of Columbia, S. C., for defendants.

Before PARKER and NORTHCOTT, Circuit Judges, and Ernest F. COCHRAN, District Judge.

PARKER, Circuit Judge.

These are separate suits instituted against the South Carolina tax commission by A. F. Doscher Sons and J. S. Pinkussohn Cigar Company, dealers in tobacco products at Charleston, S. C., to enjoin the tax commission from enforcing against them the provisions of the South Carolina Tax Act of April 22, 1927 (35 St. at Large, p. 121), upon the ground that the sections of the act affecting them contravene provisions of the Constitution of the United States and of the state of South Carolina. Complainants have applied for interlocutory injunctions, and a court of three judges has been convened to hear their applications in accordance with section 266 of the Judicial Code (28 USCA § 380 Comp. St. § 1243). By consent of parties, both cases have been heard together, as they involve practically the same facts and the same points of law.

The statute in question is entitled "An act to raise revenue for the support of the state government." It creates for the state of South Carolina a system of excise and occupation taxes, including among others a tax upon dealers in tobacco products, which is graduated in accordance with the volume of their sales within the state, and is enforced by the requirement that stamps be affixed to the merchandise passing through their hands. The act provides for the licensing by the state tax commission of wholesale and retail dealers in cigars, cheroots, stogies, cigarettes, snuff, and smoking or chewing tobacco, and imposes upon these tobacco products handled by and while in possession of the licensed dealers taxes which are graduated in accordance with the weight and retail selling price of such products. Upon cigarettes this tax is one cent for each five cents of the price, upon smoking tobacco it is two cents for each ten cents, and upon cigars retailing for over three cents each it is $10 per thousand. The act further provides that the license taxes imposed shall be paid by affixing stamps to the merchandise subject thereto in such manner that removal will require continued application of steam or water; and as to the method and time of affixing stamps it contains the following provisions:

"Method and Time of Affixing Stamps. — In the case of cigars, stogies, cheroots and chewing tobacco, the stamps shall be affixed to the box, or container, in which or from which normally sold at retail: Provided, that wholesalers and jobbers shall affix the required stamps within seventy-two (72) hours after such tobacco products are received by them: Provided, further, that any retailer shall have twenty-four (24) hours within which to affix the stamps after such tobacco products are received by him, or them: Provided, however, in the event any such tobacco products are manufactured within the state of South Carolina, they shall be stamped by the manufacturer when and as sold: Provided, however, the tax commission may, in its discretion, where it is practical and reasonable for the enforcement of the collection of taxes provided hereunder, promulgate such rules and regulations as to permit cigars, stogies and cheroots to remain unstamped in the hands of wholesalers and jobbers until the original case, or crate, is broken, unpacked or sold.

"In the case of cigarettes, snuff, smoking tobacco, chewing tobacco wrapped in packages of two (2) pounds or less, the stamps shall be affixed to each individual package by wholesalers and jobbers within seventy-two (72) hours after such tobacco products are received by them and by any retailer within twenty-four (24) hours of receipt by him or them of any such products: Provided, however, that such goods must be stamped before being sold: Provided, however, in the event any such tobacco products are manufactured within the state of South Carolina, they shall be stamped by the manufacturer when and as sold: Provided, that all retail dealers in tobacco products purchasing or receiving tobacco products from without the state, whether the same shall have been ordered through a wholesaler or jobber in this state and/or by drop shipment and/or otherwise, shall within five days after receipt of the same mail a duplicate invoice of all such purchases or receipts to the South Carolina tax commission.

* * * * * * *

"It is the intent and purpose of this section to require all manufacturers within this state, wholesale dealers, jobbers, distributors and retail dealers, to affix the stamps provided for in this section to taxable commodities, but when the stamps have been affixed as required herein no further or other stamp shall be required under the provisions of this act regardless of how often such articles may be sold or resold within this state." Section 7 (35 St. at Large, pp. 131, 132).

Provision is made in the act for a discount of 5 per cent. on a purchase of stamps to the amount of over $50 and less than $100, and of 10 per cent. on purchases of more than $100; and it is the contention of defendant that this discount is allowed to compensate wholesalers and large dealers for the trouble and expense involved in unpacking, stamping and repacking the goods, which is necessary in their case. The act provides also for consignment of stamps to dealers in tobacco products upon their executing a proper bond, so as to allow payment at intervals and only after the stamps have been used. Provision is also made for refunding the tax paid on goods sold and shipped to dealers in other states and to the United States government, upon the filing of affidavits as to such sales, accompanied by certificates of the purchasers showing that the goods had been duly stamped. Forfeiture of goods not stamped in accordance with the provisions of the act is one of the penalties provided for its violation.

As stated above, complainants are engaged in the sale of tobacco products at Charleston. It appears that the larger part of their business at that point is retail, although they do some wholesale business there also. The greater part of the tobacco products which they handle are shipped to them from without the state of South Carolina in interstate commerce, and by far the larger part of their sales are to persons within the state. They allege that some of the goods which they sell are shipped to points without the state, but defendants aver that the volume of these shipments is comparatively insignificant. Upon the hearing before us, we made inquiry of counsel as to what proportion of complainants' sales were represented by such shipments, and, upon counsel stating that they were unable to give the figures as to this, we stated that they might file affidavit with regard thereto later. No such affidavit has been filed, and upon the evidence before us we conclude that the amount thus shipped is insignificant in comparison with the other business of complainants. The Pinkussohn Cigar Company alleges that it ships to consumers at various points of the United States packages of its "Potpourri" smoking tobacco, but this company has a place of business at Savannah, Ga., and it does not appear what part, if any, of its trade in Potpourri is supplied from Charleston. The case of Potpourri, introduced in evidence before the court, showed the address of Pinkussohn as Savannah.

The goods received by complainants from without the state are mingled with and become a part of their general stock in trade, and such shipments as are made by them to points beyond the state are made from this general stock. There is no showing that the goods are brought into the state to fill special orders of customers theretofore received. On the contrary, the evidence conclusively shows that complainants are not agents or brokers, but merchants, that the goods received by them in interstate commerce are goods bought in the ordinary course of trade, and that the sales which they make are made therefrom in the ordinary course of trade.

The tobacco products which are the subject of tax are received by complainants in boxes or containers of considerable size. To comply with the Tax Act, it is necessary to unpack them so as to affix the stamps to "the box or container in which or from which they are normally sold at retail." Of course, goods not intended for immediate retail sale must be repacked in the containers. This unpacking, stamping, and repacking involves some labor and trouble, but, in the case of most of the tobacco products handled by complainants, can be accomplished without substantial injury either to the goods or to the containers. A few brands of cigarettes and smoking tobacco handled by them, however, are packed in cartons which are wrapped in paraffin paper, and boxes of cigars of a few of the brands handled are similarly wrapped. In the case of these goods, it is necessary to remove or damage the paper covers to affix the stamps as required by the act, but it appears that to provide other covers in lieu of those destroyed or damaged is a matter of but small expense.

Complainants ask that the tax commission be enjoined from enforcing the statute against them, alleging: (1) That, so far as it affects tobacco products received from or shipped to other states, it violates the commerce clause of the Constitution, both in the imposition of the tax and in the requirement that the stamps be affixed to the packages in which or from which retail sales are to be made; (2) that it violates the due process and equal protection clauses of the fourteenth Amendment to the...