Midvale Paper Board Co. v. United States

• Citation: 31 F. Supp. 851
• Parties: MIDVALE PAPER BOARD CO., Inc., v. UNITED STATES.
• Decision Date: 20 February 1940
• Court: U.S. District Court — Southern District of New York

31 F. Supp. 851

MIDVALE PAPER BOARD CO., Inc., v. UNITED STATES.

District Court, S. D. New York.

February 20, 1940.

White & Case, by Francis L. Casey, all of New York City (A. Chauncey Newlin, Joseph Willard, and Winslow M. Lovejoy, all of New York City, of counsel), for plaintiff.

John T. Cahill, of New York City (Edward J. Ennis, of New York City, of counsel), for defendant.

CONGER, District Judge.

This is a motion for judgment dismissing the complaint for failure to state a claim upon which relief can be granted.

The within action is brought to recover the capital stock tax paid by the plaintiff with respect to the taxable year ending June 30, 1933, in the amount of $420, on the ground that the law under which said capital stock tax was imposed was unconstitutional and void.

The tax statutes involved in this action are Section 215 and 216 of the National Industrial Recovery Act (June 16, 1933 c. 90, 48 Stat. 195, 207, 208). Section 215 imposed a capital stock tax; and Section 216 imposed an excess-profits tax based on the declaration of the value of capital stock under Section 215. These statutes have been the subject of much litigation, mostly on the question of the taxpayer's right to file an amended return (see Haggar Co. v. Helvering, 60 S.Ct. 337, 84 L.Ed. ___, decided January 2, 1940), although there are cases which have decided that these statutes are constitutional. See Chicago Telephone Supply Co. v. United States, ct. cl., 23 F.Supp. 471; Allied Agents, Inc. v. United States, ct.cl., 26 F.Supp. 98; Rosoff Tunnel Corp. v. Higgins, D.C., 28 F.Supp. 880. As yet, no Circuit Court of Appeals has passed on the constitutionality of these statutes, nor has the Supreme Court of the United States.

The question presented is whether the statutory use of a taxpayer's declared value of its capital stock as a basis for the capital stock tax, rather than some other "actual" value, renders the tax so arbitrary as to be unconstitutional.

The plaintiff presents five grounds for having these tax statutes declared unconstitutional:

(1) That the tax as imposed bears no relation to the value of capital stock, and is therefore capricious and arbitrary, and is in violation of the Fifth Amendment of the Constitution of the United States;

(2) That whether or not the capital stock tax is intended to have any relationship to the value of the capital stock, it is so grossly discriminatory and lacking in classification as to violate the Fifth Amendment;

(3) That because it is so indefinite on its face as to make taxpayers guess at its meaning and act at their peril;

(4) That in enacting the capital stock tax, Congress made an unauthorized delegation of its powers;

(5) That the capital stock tax violated the Fifth Amendment by reason of the adjustment provision for years subsequent to the "declaration year" (1933).

It is important to note that the plaintiff falls into the fallacy that the capital stock tax is considered separate and alone, with no connection to the excess-profits tax. Before an interpretation of plaintiff's arguments can be considered, it must be remembered that both of these statutes are interrelated, and operate together.

On the first point, this Court in the case of Rosoff Tunnel Corp. v. Higgins, supra, passed on this precise question in holding the statute constitutional. See also Allied Agents, Inc., v. United States, supra, certiorari denied, 60 S.Ct. 72, 84 L.Ed. ___, October 9, 1939; Chicago Telephone Supply Co. v. United States, supra, certiorari denied, 305 U.S. 628, 59 S.Ct. 92, 83 L.Ed. 402.

Whether this method of arriving, for the purpose of taxation of the value of the capital stock of a corporation, at the adjusted value of the capital stock to be declared by the corporation is based on the theory that the taxpayer, is the one best qualified to fix the value and so declare it, or whether the theory is that the taxpayer may declare any value that he may see fit to place on the capital stock, in my opinion, makes no difference.

I do not regard this method of fixing the value of the capital stock for the purpose of taxation, as arbitrary and capricious so as to amount to confiscation. While the United States Supreme Court, in the case of Haggar Company v. Helvering, supra, did not pass on the constitutionality of these statutes, yet it did take up and discuss this method of taxation under the sections (215 and 216) and the theory of the taxing powers of the authorities 60 S.Ct. 338: "It will be observed that by § 215 (a) and (f) the declared value of capital stock which is made the basis of computation of both taxes is not required to conform either to the actual or to the nominal capital of the taxpaying corporation; and that the declared value for the first taxable year, with the addition or subtraction of specified items of subsequent capital gains or losses is made the basis of the computation of both taxes in later years. The taxpayer is thus left free to declare any value of capital stock for its first taxable year which it may elect, but since the declared value for the first year is a controlling factor for the computation of taxes...