Morrow v. Scofield, 9572.

• Decision Date: 01 February 1941
• Docket Number: No. 9572.,9572.
• Parties: MORROW v. SCOFIELD, Internal Revenue Collector.
• Court: U.S. Court of Appeals — Fifth Circuit

116 F.2d 17 (1940)

MORROW v. SCOFIELD, Internal Revenue Collector.

No. 9572.

Circuit Court of Appeals, Fifth Circuit.

December 12, 1940.

Rehearing Denied February 1, 1941.

Harry C. Weeks, of Fort Worth, Tex., for appellant.

Carl J. Marold and George H. Zeutzius, Sp. Assts. to the Atty. Gen., and W. R. Smith, Jr., U. S. Atty., and Henry W. Moursund, Asst. U. S. Atty., both of San Antonio, Tex., for appellee.

Before FOSTER, HUTCHESON, and HOLMES, Circuit Judges.

HUTCHESON, Circuit Judge.

The suit was for refund of documentary stamp taxes affixed by the taxpayer to instruments by which the taxpayer had assigned¹ certain oil and gas lease holds on lands in Texas. They were affixed over taxpayer's protest, upon the insistence that their affixing was required by Section 800, and Schedule A-8,² of the Revenue Act of 1926, as amended, which imposes a tax with respect to any "deed, instrument, or writing * * * whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers * * *."

The district judge thought the affixing was required and gave judgment for defendant. The taxpayer, still protesting, has appealed, assailing the judgment as erroneous on two grounds. One, that the instruments were not "deeds, instruments or writings whereby any lands, tenements or other realty was granted, assigned, transferred or otherwise conveyed to or vested in the purchaser" so as to be subject to the stamp tax imposed by the statutes in question. Two, that if the treasury regulation 84, "what constitutes lands, tenements or other realty is determinable by the laws of the state in which the property is situated", is a correct construction of the section and schedule in question, so that, as is the case here, the same instrument is held to be taxable as to Texas leases and non-taxable as to Louisiana leases transferred by it, said section and schedule are invalid and unconstitutional as levying an excise tax which is not geographically uniform, but varies with each state.

We cannot agree with appellant. The Texas decisions aside, and they are uniform to the effect that mineral leasehold interests are interests in lands, tenements or other realty, we think the comprehensive language of the federal statute makes it quite plain that it was the intention of Congress to require the affixing of stamps to instruments of this kind, instruments which in substance convey interests in lands, tenements or other realty without regard to the particular legal effects and consequences which may be attached to them by the laws of a particular state.

The treasury regulation, "what constitutes lands, tenements, or other realty is determinable by the laws of the state in which the property is situated" is not a part of the statute³ but a mere rule of thumb provision for working its application out. It was not intended to, it may not be given effect where the laws of a state do violence to the purport and intent of the taxing statute. If state laws should abolish entirely the concept of lands, tenements or other realty, or declare that a conveyance of land was not a conveyance, it would not, I suppose, be contended that the statute could be nullified in those states, and the treasury regulation if read as so providing, would be a nullity. All that it amounts to is that where there may be a reasonable difference of opinion as to the legal effect of an instrument, the law of the state where the property is situated, will be looked to as controlling.

Both then, because it is not a part of the statute and because if treated as though it were, it must be given a reasonable construction, it is quite plain that Article 84 of Treasury Regulation 71, does not operate at all to impair or invalidate the statute.

Turning then to the statute itself and construing it in the light of its clearly manifested purpose, to require the affixing of stamps, to instruments which in substance transfer interests in realty, we think it quite clear that the affixing of stamps was required here. For, judging by their terms and their effect, particularly in the light of their reasonable construction in Texas, the instruments in question are undeniably transfers of interest in realty requiring stamps. Indeed, it would be a flying in the face at once of the statute imposing stamp taxes and of the law of Texas to hold otherwise.

Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199, on which appellant relies does not support him but is quite to the contrary effect. For, it makes clear that federal taxing statutes must be construed and given effect in the light of the taxing purpose they evidence and they will not be wrested out of the ordinary meaning their words convey, to conform them to particular state legal concepts. There the court, declaring that a mineral lease with payment of a bonus was not a sale within the capital gains statute; that the bonus was merely an advance payment of royalty and subject to depletion allowance as royalty payments are; and pointing out that the capital gains statute was designed to overcome the evil of paying taxes in a lump in one year on gains accumulated over many years from the sale outright of assets in that year, held that it would be a perversion of the statute to construe it as applicable to a mineral lease, since returns come from it annually and not in a lump, and depletion is allowed on account of these returns, including the bonus.

What was there said about state laws not being controlling upon the incidence of federal taxes was most appropriately said. The same thing was...