In re Otto F. Lange Co.

• Citation: 159 F. 586
• Parties: In re OTTO F. LANGE CO.
• Decision Date: 12 March 1908
• Court: U.S. District Court — Northern District of Iowa

159 F. 586

In re OTTO F. LANGE CO.

United States District Court, N.D. Iowa, Eastern Division.

March 12, 1908

P. J Nelson, Co. Atty., for Dubuque County.

Mullany & Stuart, for trustee.

REED District Judge.

The Otto F. Lange Company, an Iowa corporation having its principal place of business in the city of Dubuque, in Dubuque county, this state, was adjudged bankrupt by this court in November, 1907. It was a retail dealer in tobacco and cigars, including cigarettes, and Dubuque county has filed a claim for taxes, including a cigarette tax for $150 due from the bankrupt to the county, and asks that it be allowed as a preferred claim against the bankrupt estate. The cigarette tax is for the six months immediately preceding the bankruptcy, and is imposed upon the bankrupt under section 5007 of the Iowa Code of 1897. The trustee objects to its allowance as a preferred claim on the ground that it is not a tax within the meaning of section 64a of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 563 (U.S. Comp. St. 1901 p. 3447)). The referee sustained this contention, and upon request of the county certifies the question to the court for determination.

Section 64a of the bankruptcy act provides that:

'The court shall order the trustee to pay all taxes legally due, and owing by the bankrupt to the United States, state, county, district or municipality in advance of the payment of dividends to creditors. * * * '

That the bankrupt owed this cigarette tax, and that it was due at the time of the bankruptcy, is not disputed. Section 5006 of the Code of Iowa of 1897 provides a penalty of fine and imprisonment for selling cigarettes in violation of its provisions. Section 5007 is as follows:

'Sec. 5007: There shall be assessed a tax of three hundred dollars per annum against every person, partnership or corporation, and upon the real property, and the owner thereof, within or whereon any cigarettes, cigarette paper or cigarette wrapper, or any paper made or prepared for use in making cigarettes or for the purpose of being filled with tobacco for smoking, are sold or given away, or kept with intent to be sold, bartered, or given away, under any pretext whatever. Such tax shall be in addition to all other taxes and penalties, shall be assessed, collected and distributed in the same manner as the mulct liquor tax, and shall be a perpetual lien upon all property both personal and real used in connection with the business; and the payment of such tax shall not be a bar to prosecution under any law prohibiting the manufacturing of cigarettes or cigarette paper, or selling, bartering, or giving away the same. But the provisions of this section shall not apply to the sales by jobbers and wholesalers in doing an interstate business with customers outside the state.'

The validity of these sections has been upheld by the Supreme Court of the state and the United States Supreme Court. Hodge v. Muscatine County, 121 Iowa, 482, 96 N.W. 968 67 L.R.A. 624, 104 Am.St.Rep. 304; Id., 196 U.S. 276, 25 Sup.Ct. 237, 49 L.Ed. 477. There can be no question, therefore, of the validity of the tax, or that it is a lien upon the bankrupt's property. The trustee relies upon In re Ott (D.C.) 95 F. 274, where it is held that the mulct liquor tax imposed by section 2432 et seq., of the Iowa Code, was not a tax within the meaning of section 64a of the bankruptcy act. That the tax imposed by section 5007 of the Code is of the same nature as the mulct liquor tax, and is assessed and levied in the same manner, may be conceded, though the payment of the liquor tax, and compliance with other provisions of the law imposing it, will bar a prosecution for a violation of the prohibitory liquor law of the state, while the payment of the cigarette tax will not bar a prosecution for a violation of section 5006. The decision in Re Ott rests wholly upon decisions of the Supreme Court of the state to the effect that the mulct liquor tax is not a general tax, so as to become a lien upon property prior to valid existing liens thereon at the time the tax is assessed, and is not of the same effect in this respect as general taxes. It was therefore held, following these decisions, that the mulct liquor tax is not a tax within the meaning of section 64a of the bankruptcy act. If the state decisions are to control then the later decisions of the Supreme Court of the state clearly establish that both the mulct liquor tax and the cigarette tax are imposed under the taxing...