Harmar Coal Co. v. Heiner

• Citation: 34 F.2d 725
• Decision Date: 23 September 1929
• Docket Number: No. 3968-3972.,3968-3972.
• Parties: HARMAR COAL CO. v. HEINER, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Third Circuit

34 F.2d 725 (1929)

HARMAR COAL CO. v. HEINER, Collector of Internal Revenue.

Nos. 3968-3972.

Circuit Court of Appeals, Third Circuit.

September 23, 1929.

W. A. Seifert, William W. Booth, and Smith, Shaw & McClay, all of Pittsburgh, Pa., for appellants.

John D. Meyer, U. S. Atty., and John A. McCann, Sp. Asst. U. S. Atty., both of Pittsburgh, Pa., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Lyndon H. Baylies, both of Washington, D. C., for appellee.

Before BUFFINGTON and WOOLLEY, Circuit Judges, and FAKE, District Judge.

WOOLLEY, Circuit Judge.

The plaintiff corporations, after payments under protest, brought this group of cases to recover excise taxes for the years 1921, 1922 and 1923 levied under section 1000 of the Revenue Acts of 1918 (40 Stat. 1057, 1126) and 1921 (42 Stat. 227, 294) with respect to "carrying on or doing business." The plaintiffs, claiming exemption from the capital stock tax because, as they maintain, they were not doing business during the tax periods within the meaning of the acts, waived trial by jury and, the defendants assenting, tried their cases to the court, which entered judgment in each suit for the defendant collector. The taxpayers are here on separate appeals.

These cases were argued on the theory that the determination of the question whether the plaintiff corporations were "carrying on or doing business" in the sense of the acts depends upon whether they fall on the facts within a line of Supreme Court cases holding that the corporations there concerned were doing business, or within a line of cases holding that the corporations were not doing business. Whether the cases at bar fall within or outside one or the other of these opposite lines depends largely on the facts of the many adjudged cases and involves a study of the facts of each case in relation to the facts of the cases at bar and calls for decision in each instance, one way or another, very much according to the mental view point of the judge rather than decision controlled by some definite principles. We feel that the proper way to approach this question — often perplexing because often on the border line — is not to search the Supreme Court decisions for cases similar to these on the facts and decide the question by matching the cases — which is practically what we did in Public Service Railway Company v. Herold (C. C. A.) 229 F. 902 — but rather to look for and find the principles which move the Supreme Court in distinguishing between a corporation doing business and one not doing business and apply them to the cases in hand.

Cases of the character of the ones on appeal had their rise under that portion of the Tariff Act of 1909 (36 Stat. 11, 112, § 38) which became known as the Corporation Tax Law containing a provision for an excise tax upon the privilege of doing business, reenacted in succeeding revenue acts. In determining whether a corporation was doing business the Supreme Court was first to recognize, and depart from, the definition of business, which it stated to be "a very comprehensive term and embraces everything about which a person can be employed"; "that which occupies the time, attention, and labor of men for the purpose of a livelihood or profit." Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 357, 55 L. Ed. 389, Ann. Cas. 1912B, 1312. It realized at once that certain corporate acts "about which a person can be employed" or in which a corporation may engage concern only the maintenance of corporate existence and have no relation to the conduct of business for which a corporation is organized, while other corporate acts are done and performed solely in furtherance of that business without relation to the maintenance of the corporation. On this distinction it held that in respect to the former, the law does not impose a tax, and in respect to the latter it does. Between these opposite positions many cases have arisen where there were corporate acts partaking of the nature of business transactions but pursued under circumstances that indicated performance of past contractual undertakings rather than the conduct of current corporate business for profit. In this zone between definite extremes courts have held that the statute imposes an excise tax not because of every act performed by a corporation under its incidental powers, but upon the privilege of doing and carrying on the business for which it was organized, and when the corporation ceases the conduct of such business by turning it over to be carried on by another it ceases to be subject to the tax so long as it commits no act by which the resumption of its business is to be inferred. Anderson v. Morris & Essex R. R. Co., 216 F. 83 (C. C. A. 2d); N. Y. C. & H. R. R. Co. v. Gill, 219 F. 184 (C. C. A. 1st); Lewellyn v. Pittsburgh, B. & L. E. R. R. Co., 222 F. 177 (C. C. A. 3rd); Traction Companies v. Collectors, 223 F. 984 (C. C. A. 6th); United States v. Emery-Bird-Thayer Realty Co., 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825; McCoach v. Minehill & Schuylkill Haven R. Co., 228 U. S. 295, 33 S. Ct. 419, 57 L. Ed. 842.

In the early cases of Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, and Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428, preceding the case of United States v. Emery, 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825, where it was said that "the question is rather what the corporation is doing than what it could do," the Supreme Court held that "corporations organized for the purpose of doing business, and actually engaged in such activities as leasing property, collecting rents, managing office buildings, making investments of profits * * * dividing profits, and in some cases investing the surplus, are engaged in business within the meaning of this statute, and in the capacity necessary to make such organizations subject to the law," but that a corporation whose sole purpose is to hold title to a single parcel of real estate subject to a long lease and for convenience of the stockholders to receive and distribute the rentals, "and which has disqualified itself from doing any other business," is not a corporation doing business within the meaning of the corporation tax provisions of the Tariff Act of 1909. The line between doing business and not doing business the court pointed out in United States v. Emery, supra, lies between Cedar Street Company v. Park Realty Company, one of the Flint v. Stone Tracy Co. cases, 220 U. S. 107, 170, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, and Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428, stating that the latter case was carried perhaps a little farther by McCoach v. Minehill R. R. Co., 228 U. S. 295, 33 S. Ct. 419, 57 L. Ed. 842, where the activities of the corporation in respect to its leased properties covered something more than the maintenance of its corporate existence and distribution of rentals yet where it had ceased to do the business of railroading for which it was incorporated.

Following the Minehill decision lower courts were inclined — or induced — to broaden the range of non-taxable corporate activities until cautioned by the decision in Von Baumbach v. Sargent Land Company, 242 U. S. 503, 516, 37 S. Ct. 201, 61 L. Ed. 460, and checked by the decision in Edwards v. Chile Copper Company, 270 U. S. 452, 46 S. Ct. 345, 346, 70 L. Ed. 678, and Phillips v. International Salt Company (C. C. A.) 9 F. (2d) 389; Id., 274 U. S. 718, 47 S. Ct. 589, 71 L. Ed. 1323.

In the Sargent Land Company Case the court, recognizing that a decision whether a corporation is carrying on business within the meaning of the Corporation Tax Law...