F. Couthoui, Inc. v. United States, M-64.

• Decision Date: 07 December 1931
• Docket Number: No. M-64.,M-64.
• Citation: 54 F.2d 158
• Parties: F. COUTHOUI, Inc., v. UNITED STATES.
• Court: U.S. Claims Court

54 F.2d 158 (1931)

F. COUTHOUI, Inc., v. UNITED STATES.

No. M-64.

Court of Claims.

December 7, 1931.

Charles H. Le Fevre and Howard S. Le Roy, both of Washington, D. C., for plaintiff.

George H. Foster, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (Ottamar Hamele, of Washington, D. C., on the brief), for the United States.

Before BOOTH, Chief Justice, and WHALEY, WILLIAMS, LITTLETON, and GREEN, Judges.

GREEN, Judge.

The plaintiff in this case paid $167,606.22 as taxes on broker's sales of admission tickets from October 30, 1926, to September 30, 1930, inclusive. Within due time, the plaintiff filed a claim for refund of this tax on the ground that the statutes under which it was imposed were unconstitutional. The Commissioner denied the claim and the plaintiff has brought suit thereon. The only issue in the case is as to the validity of the act.

The statutes under which the tax was imposed are section 500 (a) (2) of the Revenue Act of 1926, and section 412 of the Revenue Act of 1928 (26 USCA § 871 (a) (2), which amends paragraph (2) of subdivision (a) of section 500 of the earlier act to read as follows: "(2) Upon tickets or cards of admission to theaters, operas, and other places of amusement, sold at news stands, hotels, and places other than the ticket offices of such theaters, operas, or other places of amusement, at not to exceed 75 cents in excess of the sum of the established price therefor at such ticket offices plus the amount of any tax imposed under paragraph (1), a tax equivalent to 5 per centum of the amount of such excess; and if sold for more than 75 cents in excess of the sum of such established price plus the amount of any tax imposed under paragraph (1), a tax equivalent to 50 per centum of the whole amount of such excess, such taxes to be returned and paid, in the manner and subject to the interest provided in section 502, by the person selling such tickets."

The only substantial change made by the amendment is the substitution of "75 cents" for "50 cents" in two places.

In support of the contention of the plaintiff that the act in question is unconstitutional, it is urged, among other things, that its provisions fixing the rates of the tax are arbitrary, capricious, and discriminatory, that the act as a whole is an attempt to regulate a private business in respect to the manner in which it can be conducted, and that its purpose is to fix and limit the price at which tickets may be sold. It is therefore argued that the act is unconstitutional.

We do not think it is necessary to discuss at any length the objection that the statutes involved are an exercise of the police power. Considered apart from its rates, it is simply an ordinary excise tax which the government had the undoubted power to impose. In discussing its validity, it should be kept in mind that its constitutionality is challenged solely on the basis of the rates which it fixed. We will therefore take up the specific rates used in the statute attacked herein, and consider whether the use of these rates made the tax invalid.

In this connection, we find that one of the chief objections to the tax is based upon the fact that, under its provisions, the excess in price of the tickets when sold over the established price is taxed only 5 per cent. when such excess does not exceed 75 cents, but, if so sold that the excess exceeds 75 cents, then a tax of 50 per cent. of the excess is imposed. Plaintiff particularly relies on the fact that the broker cannot profitably charge more than a certain amount of excess, unless he finds customers who are willing to pay a sufficiently high price for tickets to return a greater profit than would be received if the ticket was sold at a price not exceeding the figure at which the rate of tax was made higher. So far as the question of profit is concerned, it is obvious that within certain limits a tax on tickets sold at a price exceeding 75 cents (over and above the box office price) would be so much greater than the tax which would have been imposed if the ticket had been sold for a price not exceeding 75 cents, that when, in each case, the tax was deducted, it would be found that more profit was realized if the ticket was sold at a lower price. It is therefore contended on behalf of the plaintiff that the effect of the tax is to prohibit sales of tickets within a certain zone of prices. In an economic way, the conclusion is well drawn, for it is clear that no broker would sell tickets at a price higher than 75 cents above the established price unless he could thereby realize a greater profit than he would at selling for less than that figure. But as an actual fact, the broker was not prohibited from so selling, and the mere fact that a tax is so imposed that its economic effects are to restrict business within certain lines, or even to put certain persons out of business, is not sufficient to make the act imposing it unconstitutional. This we think may be shown to be a rule which is uniformly followed in imposing taxes, and which is supported by the decisions of the Supreme Court.

The state of Iowa, for example, imposes a tax of $500 per annum upon every dealer of cigarettes. The tax is absolute and flat, and makes no difference or allowance on account of the amount of business or the profit which may be received or whether there is in fact a loss. The economic effect of this tax when it was imposed was necessarily to force the small dealers, some of whom did not sell that amount of cigarettes in a year, to go out of business, for it is plain that no dealer could afford to sell cigarettes unless he received in profits a sum considerably larger than the tax. Although the tax created a situation under which there was a zone in which no one could profitably carry on the business of selling cigarettes, it never has been contended, and we do not think it ever will be contended, that the statute is unconstitutional or that a similar statute enacted by the federal government would be unconstitutional.

The taxes that are subject to such objections as can be made against the Iowa tax on cigarettes are so numerous and well known that it is not necessary to list them. The courts have uniformly upheld such taxes when this was the only objection, and have considered them entirely within the constitutional powers of the legislative bodies which enacted them.

It is urged also that the tax is discriminatory. This objection is often made against a tax as a ground for holding it unconstitutional, but all taxes are discriminatory in the sense that the word is used in argument. Economists are agreed that there never was a tax that did not sometimes work out unequally and unfairly as between the different taxpayers, and most taxes often have that effect. In many instances the taxes are not assessed in the same proportion that is used under other conditions. But the mere fact that in certain cases a tax works unfairly or even oppressively is not sufficient to render it unconstitutional. In Metropolis Theater Co. v. Chicago, 228 U. S. 61, 33 S. Ct. 441, 443, 57 L. Ed. 730, the Supreme Court said: "To be able to find fault with a law is not to demonstrate its invalidity. It may seem unjust and oppressive, yet be free from judicial interference. The problems of government are practical ones and may justify, if they do not require, rough accommodations, — illogical, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible; the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review. It is only its palpably arbitrary exercises which can be declared void under the 14th Amendment; and such judgment cannot be pronounced of the ordinance in controversy. Quong Wing v. Kirkendall, 223 U. S. 59, 32 S. Ct. 192, 56 L. Ed. 350." (Italics ours.)

It is also said that the tax is arbitrary and capricious. In the sense in which these words are often used, many of the oldest taxes and those most firmly established in the revenue system are subject to the objection now being considered. In a large number of excise taxes, an arbitrary figure is used in computing the tax, for which no reason can be given than that in the judgment of the legislative body enacting the law it was the one best suited for the combined purpose of obtaining the revenue and applying the tax in the manner least harmful to the public. It is said in argument that a tax cannot be imposed on red-headed men, leaving all others exempt from the same tax. It must be admitted that a mere difference in the color of the hair will not prevent taxpayers from standing on an equal basis and being entitled to equal taxation, but surrounding circumstances may make color in some instances a proper basis for taxation. It will be noted that in In re Kollock, 165 U. S. 526, 17 S. Ct. 444, 41 L. Ed. 813, the Supreme Court sustained a statute which levied a tax of two cents a pound on yellow oleomargarine, but left uncolored oleomargarine exempt, and provided for regulations which would cause the colored article to be identified when it was put upon the market. It seemed to be conceded in the case that one purpose of the act was to prevent the deception of purchasers who might buy the colored oleomargarine for butter. But the court said the act was on its face an act for the purpose of producing revenue, and the court could not assume that its primary purpose was something else, and it held the discrimination between colored and uncolored oleomargarine to be one which Congress was authorized to make, and sustained the act. In the case at bar, the same rule would apply. The large amount of taxes sought to be recovered in this case show that the tax would produce a very considerable revenue, and it cannot be assumed that its primary purpose was not to bring money into the Treasury, but to regulate business practices.

It will be...