National Paper & Type Co. v. Edwards

• Decision Date: 26 May 1923
• Citation: 292 F. 633
• Parties: NATIONAL PAPER & TYPE CO. v. EDWARDS, Collector of Internal Revenue.
• Court: U.S. District Court — Southern District of New York

292 F. 633

NATIONAL PAPER & TYPE CO. v. EDWARDS, Collector of Internal Revenue.

United States District Court, S.D. New York.

May 26, 1923

Lord Day & Lord, of New York City, for plaintiff.

Wm Hayward, U.S. Dist. Atty., of New York City, for defendant.

MACK Circuit Judge:

This is a suit to recover the sum of $183,844, income and excess-profits taxes assessed against the plaintiff for the fiscal year ending March 31, 1919, under sections 230, 233 and 301 of the Revenue Act of 1918 (Comp. St. Ann. Supp 1919, Secs. 6336 1/8nn, 6336 1/8p, 6336 7/16aa), ^[1] and alleged to have been paid by the plaintiff under protest.

It appears from the complaint that during the year in question the plaintiff was engaged in the business of exporting goods from the United States and of selling such goods in foreign countries. The total gross business of the plaintiff for the period was $6,435,512.69, of which amount $6,295,165.87 were sales of goods by the plaintiff in foreign countries after the goods had been exported there, and $158,346.82 were sales to export commission merchants in this country with the intent and purpose that the goods should be exported and with the result that the goods were actually exported. The validity of the taxes assessed is assailed in the complaint on two grounds: (a) That the taxes are upon exports in violation of article 1, section 9, clause 5, of the Constitution; and (b) that the taxes are unequal, discriminating, and unfair, and in consequence null and void, because the income of foreign corporations engaged in exporting goods from the United States is not subject to tax under similar circumstances. The defendant has moved for judgment on the pleadings on the ground that the facts alleged are not sufficient to constitute a cause of action.

In the light of the decision in Peck & Co. v. Lowe, Collector, 247 U.S. 165, 38 Sup.Ct. 432, 62 L.Ed. 1049, in which the Supreme Court held, under the Income Tax Law of 1913, that income of domestic corporations derived from the business of export was within the taxing power of Congress and was not in violation of article 1, section 9, clause 5, of the Constitution, plaintiff in its brief has abandoned its attack on these taxes as in violation of this provision of the Constitution. It now concentrates its attack upon the law on the ground that, as interpreted by the Attorney General (32 Op.Attys.Gen. 336), and as enforced by the Treasury it deprives the plaintiff of property without due process of law in violation of the Fifth Amendment, because it imposes upon the plaintiff's business discriminatory and unequal burdens which are not imposed upon foreign corporations similarly situated.

It is admitted by the government that the acts of 1909 (36 Stat. 11) and 1913 (38 Stat. 166, 172), the wording of which differs slightly from that of the act of 1918, were in practice applied, at least to some extent, to foreign corporations in respect of income derived from the sale in foreign countries of goods manufactured or acquired in the United States. ^[2] It is unnecessary, however, here to consider the proper interpretation to be given to the acts of 1909 and 1913 or the act of 1918 as applied to foreign corporations, since I am satisfied of the constitutionality of the law as applied to the plaintiff, even though the income of foreign corporations from like sources is construed to be exempt

There is, as is now conceded, no question as to the power of Congress to tax the net income of domestic corporations derived from their export business. The question as to how far it is wise and proper to extend our taxing laws to foreign corporations that manufacture or acquire goods in this country, and sell them abroad, involves many economic and political considerations. These are peculiarly within the province of Congress, not the courts. It is perhaps inevitable not only that the rate of taxation should vary in different countries, but that there should be some laps and some gaps in the adjustment of the revenue laws of the various countries to foreign trade. It may happen for a time that income from some transactions may escape all taxation, while other income may have to bear its tax in more than one country. But a nation that attempts to reach out too far in the direct or indirect taxation of foreign trade may invite retaliation and reprisal. So long as the tax on American corporations is measured by net income actually realized, it is difficult to see that the American corporations are seriously handicapped in competing for any particular contracts, even if it could be assumed that foreign competitors were subject to no equivalent taxation by their own governments. Clearly, however, such a handicap or discrimination does not make the...